Hungary: Central Bank lowers rates amid faltering growth
August 28, 2012
At its latest monetary policy meeting on 28 August, the Central Bank voted to cut the base rate by 25 basis points to 6.75%. The decision was not completely unexpected, as monetary authorities had hinted the possibility of a rate cut at their previous meeting, provided that the risk premium moderated markedly and the inflation outlook improved. That said, the timing of the move did surprised most market analysts, as a majority expected the rate cut to take place later this year. The decision to ease the reins followed the release of second quarter GDP figures, which showed that the economy fell back into recession. In the same vein, the Bank stated that "domestic demand is likely to fall further in the coming quarters [and that] investment will remain subdued, reflecting the weak outlook for economic activity, the unpredictable business environment and tight credit conditions". On the inflation side, the Bank acknowledged that data for June and July came in higher than expected and that, despite subdued domestic demand, consumer prices are "expected to remain significantly above the medium-term target into 2013, as a result of a series of increases in indirect taxes affecting consumer prices".