Hungary: Central Bank leaves rate unchanged at record-low
August 26, 2014
At its 26 August monetary policy meeting, the Central Bank kept the base rate at the record low level of 2.10%. This decision was widely expected by market analysts. At its previous meeting in July, the Bank announced that the easing cycle, which had been initiated in August 2012, had come to an end.
In the accompanying statement, the Central Bank said that the current level of the base rate is consistent with the Bank’s 3.0% inflation rate target. Furthermore, the Bank stated that this rate is also supportive of the real economy. The Bank also noted that, despite the current low levels of inflation and moderate inflationary pressures, it expects inflation to approach its target rate in the medium term because domestic-demand side pressures are expected to increase on rising economic activity. In addition, the Bank reiterated that it expects economic growth to continue in the medium term. With output currently underperforming, the Bank sees it reaching its full potential during the next year. While domestic demand is seen as the main driver of growth, the Bank pointed out that a recovery of the Hungarian exports market will gradually contribute to increase capacity utilization. Consumption and investment are also expected to rise. Increased EU funding and the Central Bank’s credit-easing initiatives, such as the Funding for Growth Scheme, are expected to drive investment growth.
The Bank reaffirmed its expectation to maintain a loose monetary policy stance for an extended period of time. The next monetary policy meeting is scheduled for 23 September.