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

Hungarian opposition parties bet on strong election turnout as cooperation talks stall

Green opposition party Politics Can Be Different (LMP) has suspended talks with fellow opposition parties after they failed to reach a cooperation agreement ahead of the April general election.  ... more

Facebook restores controversial video of head of Hungarian PM's office

Facebook has reversed its decision and restored a video posted by Janos Lazar, head of Viktor Orban's Prime Minister's Office, in which he allegedly made racists comments while walking around a ... more

Independent candidate scores stunning victory in Hungarian mayoral by-election

An independent candidate backed by opposition parties scored a stunning upset at a mayoral by-election in the town of Hodmezovasarhely, a Fidesz stronghold, on February 25, in a vote widely perceived ... more