Hungary c-bank further cuts key rate, in line with expectations.

By bne IntelliNews February 27, 2013

The monetary council of Hungary's central bank decided on February 26 to cut the base rate by 0.25bps to 5.25%, the bank said in a statement on its website. This was the seventh consecutive reduction that put the key rate at the lowest level since April 2010. The decision was broadly expected by market analysts, who believed that the council's four non-executive members appointed by the parliament will again outvote the bank's governor and his two deputies, as they did in the previous six meetings. Rate setters also discussed a proposal to keep the base rate on hold. The council expects weak demand conditions to persist, which will ensure that inflationary pressures in the economy remain muted in the period ahead. The level of output is below its potential and unemployment is above its long-term level determined by structural factors. Moreover, the central bank projects stronger-than-expected disinflationary impact of weak domestic demand considering the slowdown in inflation in January coupled with the marked slowdown in underlying inflation. The rate setters concluded also that the inflation target can be met even with looser monetary conditions. The success of the foreign currency-denominated bond issue by the government earlier this month has reduced financing risks for the economy, while a cooperation with the European Commission and the IMF might contribute to a further reduction in financing costs and a sustained improvement in perceptions of the risks associated with the economy, the central bankers said.

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