Hungary: Central Bank cuts rate in last meeting of the year
December 18, 2012
At its 18 December monetary policy meeting, the last one scheduled for 2012, the Central Bank voted to cut the base rate by 25 basis points to 5.75% in a move expected by the market. The decision marked the fifth consecutive rate cut, as authorities move to rekindle faltering economic growth.
The decision reflected the Central Bank's view that weaker domestic demand will have a disinflationary effect on the economy. In addition, the Bank noted that the Hungarian economic outlook has deteriorated and that it is likely to improve only moderately in the coming two years.
Regarding price developments, the Monetary Council changed its rhetoric by noting that "inflation is expected to slow significantly in the short term". The Bank expects to meet its inflation target in the medium term as one-off price level shocks dissipate. Moreover, the Council maintained a dovish tone and reiterated that it "will consider a further reduction in interest rates only if the improvement in financial market sentiment continues and incoming data confirm that the inflation target is achievable on the horizon relevant for monetary policy".