Hungary's rate setters again united in June’s rate cut decision

By bne IntelliNews July 11, 2013

The decision of the monetary council (MC) of Hungary's central bank to reduce the main rate for a tenth month in a row in June by 25bps, bringing it to a new historic low of 4.25%, was unanimously approved by all seven rate setters on June 25, minutes from the meeting showed.

The rate setters considered that the medium-term inflation outlook had remained consistent with the achievement of the inflation target. In the short term, inflation was likely to ease further, mainly driven by falls in administered prices and commodity prices. In the longer term, the effects of government measures increasing production costs in some sectors were likely to feed through to the corporate sector. With capacity utilisation remaining low, however, the pass-through to consumer prices was likely to be gradual and partial.

The central bank expects economic growth to be driven by exports due to new capacity created in the automobile industry and the country’s export market share might rise even as external demand remains subdued. At the same time demand was expected to stabilise in 2013, after declining in the previous years.

Although household real income is expected to grow markedly in 2013, a faster recovery in consumption will be limited by reduction in debts, tight lending conditions and precautionary behaviour. The central bank believes that tangible improvement in investment was likely to occur, supported by favourable lending conditions for SMEs resulting from the Funding for Growth Scheme.

According to the council’s judgement, the global financial markets had become more fragile recently. The possibility that the euro-area recession would be more prolonged despite the significant efforts by European institutions might create further uncertainty, the rate setters said. In this regard they agreed that a marked deterioration in the financial environment might limit the room for manoeuvre in monetary policy.

The council will consider a further reduction in interest rates as long as the outlook for inflation and the real economy justifies it, interest rates can be reduced further; however, increased caution is warranted in the volatile and rapidly changing global environment.

Related Articles

Hungary lines up yuan-denominated bond for June

Hungary’s is ready to launch its second yuan-denominated bond in June, Economy Minister Mihaly Varga claimed in comments published on May 29. ... ... more

Central European banks eye south-eastern expansion

Banking merger and acquisition (M&A) activity in Central Europe is likely to be further limited by the upturn in the region’s economies, industry sources said in comments published on May 29. ... more

Hungarian PM announces generous family support scheme in big election drive

Prime Minister Viktor Orban has outlined ambitious new family policies at the Budapest Demography Forum to challenge Hungary's falling demographics.The government's aim is to increase the number of ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Dismiss