Hungary decreases central bank base rate to 1.8% from 1.95%

By Angela McDaniels

Tacoma, Wash., April 21 – The Monetary Council of Hungary’s Magyar Nemzeti bank announced that it voted to reduce the central bank base rate by 15 basis points to 1.8% from 1.95% at its meeting on Tuesday. The change is effective as of April 22.

In the council’s judgement, Hungarian economic growth is likely to continue at a rapid pace, although output remains below potential and it expects the domestic real economy to continue to have a disinflationary impact.

Despite the pick-up in the components of domestic demand, the council expects capacity utilization to improve only gradually due to the protracted recovery in Hungary’s export markets.

Employment is rising, but unemployment continues to exceed its long-term level.

In the council’s judgement, there is a degree of unused capacity in the economy and inflationary pressures are likely to remain moderate for a sustained period. The council expects inflation to approach levels around 3% towards the end of the forecast period.

If the assumptions underlying the bank’s projections hold, the council believes the inflation outlook and the cyclical position of the economy point in the direction of a reduction in the policy rate and loose monetary conditions for an extended period. The council said cautious easing of the policy rate may continue as long as it supports the achievement of the medium-term inflation target.

As previously reported, the council reduced the rate to 1.95% from 2.1% in March.

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