Hungary: Central Bank continues to reduce base rate
March 25, 2014
At its 25 March monetary policy meeting, the Central Bank decided to cut the base rate by 10 basis points from 2.70% to 2.60%. The decision met market expectations. As a result, the interest rate now sits at the lowest level on record. This marks the twentieth consecutive meeting in which the Bank decided to cut the base rate in order to boost the economy. The Central Bank justified the reduction in the base rate given, “the low inflation environment, subdued inflationary pressures over the medium term and a degree of spare capacity in the economy.” As for price developments, the Monetary Council expects inflation to remain below the 3.0% inflation target rate in 2014, while it believes inflation will move in line with the target rate in 2015. The Central Bank stated that it expects the weakening of the exchange rate in recent months and a likely gradual increase in capacity utilization to contribute to a rise in the general price level. However, it expects only moderate wage growth and a disinflationary impact from the domestic real economy. FocusEconomics Consensus Forecast panelists see the base rate at 3.80% by the end of 2014. For 2015, the panel expects the base rate to remain stable at 3.80%.
Author: Armando Ciccarelli, Head of Data Solutions