Hungary votes to decrease central bank base rate to 1.35% from 1½%

By Tali Rackner

Norfolk, Va., July 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 1.35% from 1½% at its meeting on Tuesday. The change is effective as of July 22.

In the council’s judgment, Hungarian economic growth is likely to continue. While the pace of economic activity is strengthening, output remains below potential and the domestic real economic environment is expected to continue to have a disinflationary impact, albeit to a diminishing extent.

Despite the pick-up in domestic demand, capacity use is expected to improve only gradually due to the protracted recovery in Hungary’s export markets.

With employment rising, unemployment continues to exceed its long-term level determined by structural factors.

Inflationary pressures are likely to remain moderate for an extended period.

In the council’s judgment, there continues to be a degree of unused capacity in the economy, and inflationary pressures are likely to remain moderate.

Based on available data, the risk of second-round effects materializing due to excessively low inflation expectations has moderated. In the council’s assessment, the policy rate reached the level that ensures the medium-term achievement of the inflation target and a corresponding degree of support to the economy.

If the assumptions underlying the bank’s projections hold, the inflation outlook and the cyclical position of the economy point to the direction of loose monetary conditions for an extended period.

The rate change follows last month’s decrease to 1½% from 1.65%, May’s reduction to 1.65% from 1.8% and April’s decrease to 1.8% from 1.95%.

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