The monetary council (MC) of Hungary's central bank decided on February 18 to cut the base rate by 15bps to a new historic low of 2.70%, the bank said in a statement on its website. This was the eighteenth consecutive reduction and followed a similar reduction in January 2014. It came as a surprise for the market, which expected a 10bps cut, according to most of the analysts polled by Reuters.
The rate setters consider that domestic real economic factors are expected to continue to have a disinflationary impact, although to a declining extent. However, economic output still remains below its potential and is likely to come close to that level again at the end of the horizon relevant for monetary policy.
GDP growth is expected to pick up further in the coming quarters and to return to a more balanced pattern. With the increase in corporate investment due to the Funding for Growth Scheme and the Government’s infrastructure projects using EU funding, the recovery in household consumption is likely to be gradual.
The central bankers agreed that the global investor sentiment has been volatile recently as a result of the Fed’s decision to reduce further the pace of its asset purchases and the deterioration in perceptions of the risks associated with emerging economies. This put pressure on the currencies of the emerging economics. At the same time, the euro-area policy rate is expected to remain at low levels for an extended period. Perceptions of the risks associated with Hungary have deteriorated. Uncertainty related to the global financial environment warranted cautious approach to monetary policy, the bankers said.
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