Hungary: Central Bank leaves rates unchanged but opens the door for future rate cut
July 24, 2012
At its latest meeting on 24 July, the Central Bank left the base rate unchanged at 7.00%. The vote was expected by most market analysts following on similar decisions taken since December 2011. The Bank stated that it expects the economy to contract 0.8% this year. Nonetheless, despite subdued domestic demand, monetary authorities anticipate inflation to "remain significantly above the medium-term target [of 3.0%] into 2013 as a result of a series of increases in indirect taxes affecting consumer prices". The Bank commented on the positive developments observed recently in Hungarian financial markets, but warned that that the situation remains fragile. The Bank welcomed the resumption of negotiations between the government and the EU and IMF, stressing that an agreement "could lead to a sustained improvement in risk perceptions". In the same vein, the Bank pointed out that it "will consider a reduction in interest rates if Hungary's risk premium falls persistently and substantially and the outlook for inflation improves".