Hungary cuts interest rate to record low, ends easing cycle

GMT 17:39 2015 Tuesday ,21 July

Arab Today, arab today Hungary cuts interest rate to record low, ends easing cycle

Hungarian Central Bank head Gyorgy Matolcsy
Budapest - AFP

Hungary's central bank on Tuesday cut its main interest rate to a record low of 1.35 percent from 1.5 percent, before calling an end to the second of two easing cycles since 2012.

The MNB cut the base rate for 24 consecutive months from August 2012 when the rate was seven percent, then again for five straight months from March this year.

Tuesday's 15-basis-point cut, slightly above most analysts' forecasts of 10 basis points, marked the end of the long easing policy, the MNB's rate-setting Monetary Council said in a statement.

"The policy rate has reached the level which ensures the medium-term achievement of the inflation target (of three percent) and a corresponding degree of support to the economy," the statement read.

Annual inflation in the non-eurozone EU member state was just 0.6 percent in June, after an eight-month period of negative inflation, which lasted until April.

In 2014, Hungary's GDP grew by 3.6 percent, while the IMF forecasts 2.7 percent growth this year. Meanwhile the European Commission, the EU's executive arm, has predicted just 0.8 percent annual inflation for Hungary in 2015.

"The inflation outlook and the cyclical position of the economy point to the direction of loose monetary conditions for an extended period," the Monetary Council said.

"This is it, we will not go further," MNB head Gyorgy Matolcsy confirmed, calling the new benchmark rate the "lowest in Hungary's economic history" and adding that the rates would be kept on hold for "a very long time".

In a bulletin after the rate cut, London-based analysts Capital Economics said that further rate cuts might have put the national currency the forint under pressure, and that no rate hikes were now expected in the short-term.

"The National Bank will come under little pressure to raise interest rates this year or next," the report said.

The forint jumped to a two-month high versus the euro after the announcement, trading at 307.98 to the euro late Tuesday, up from 310.02 late Monday.


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