Hungary: Central Bank cuts base rate again; leaves door open for more
May 26, 2015
The Central Bank decided to cut the base rate from 1.80% to 1.65% at its 26 May monetary policy meeting, as market analysts had expected. This was a third consecutive rate cut after the Bank had kept it on hold from July 2014 to March of this year.
In the accompanying statement, the Bank reiterated that it sees GDP growth to continue at a fast pace and economic activity to gain momentum. While according to the Central Bank the domestic economy will continue to strengthen, exports are projected only to pick up the pace gradually due to a lengthy recovery in Hungary’s key export markets. According to the Central Bank, Hungary’s output remains below potential and the domestic economy is expected to have a “disinflationary impact” going forward.
As for price developments, while the Central Bank said that, “consumer prices show historically low dynamics,” it also pointed out that the declines in consumer prices had softened in recent months, with April’s reading coming in above expectations. Nonetheless, according to the Bank, inflationary pressures remained moderate, largely owing to subdued inflation in external markets, weak imported inflation and spare capacity in Hungary’s economy, as well as lower inflation expectations. In the Bank’s view, inflation will only pick up only gradually to its inflation target of 3.0% in the second half of 2016.
The Central Bank left the door open for further rate hikes in stating that, “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. Cautious easing of the policy rate may continue as long as it supports the achievement of the medium-term inflation target.” The next monetary policy meeting is scheduled for 23 June.