Hungary Monetary Policy


Hungary: Central Bank cuts base rate again; maintains dovish tone

April 21, 2015

The Central Bank decided to cut the base rate from 1.95% to 1.80% at its 21 April monetary policy meeting as market analysts had expected. This was a second 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 noted that it expects GDP growth to continue and economic activity to strengthen. While according to the Central Bank the domestic economy will continue to gain momentum, exports are expected to only speed up gradually due to a prolonged recovery in Hungary’s main export markets. At the same time, the Bank noted that Hungary’s output was below potential and that the domestic economy is expected to have a “disinflationary impact” going forward.

Regarding price developments, the Central Bank said that, “consumer prices show historically low dynamics” and it sees inflationary pressures remaining moderate in the medium term. According to the Bank, these low inflationary pressures have resulted from subdued inflation in external markets, weak imported inflation and spare capacity in Hungary’s economy, as well as lower inflation expectations. In addition, the Bank identified the weak international oil price as the single most important driver of the low inflation environment and that it expects inflation to pick up only gradually as the risk persisted that second-round effects of the weak oil price would take hold.

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.” The next monetary policy meeting is scheduled for 26 May.

FocusEconomics Consensus Forecast panelists see the base rate ending 2015 at 1.62%. For 2016, the panel sees the base rate ending the year at 2.32%.

Author: Teresa Kersting, Economist

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Hungary Monetary Policy Chart

Hungary Monetary Policy April 2015

Note: Central Bank base rate in %.
Source: Hungarian Central Bank (MNB).

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