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Hungary decreases central bank base rate to 1.65% from 1.8%
By Toni Weeks
San Luis Obispo, Calif., May 26 – 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 1.65% from 1.8% at its meeting on Tuesday. The change is effective as of May 27.
In the council’s judgment, Hungarian economic growth is likely to continue at a rapid pace. Although the pace of economic activity is strengthening, output remains below potential, and the domestic real economy is expected to continue to have a disinflationary impact, albeit to a diminishing extent.
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 judgment, there is a degree of unused capacity in the economy, and inflationary pressures are likely to remain moderate for a sustained period.
Based on data becoming available previously, the risk of second-round effects taking hold in the wake of the change in inflation expectations still remains after increasing in recent months. 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 1.8% from 1.95% in April.
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