ADVERTISEMENT

Rate-setters decide on 25bp cut

Conferences

The National Bank of Hungary's Monetary Council decided at a meeting on Tuesday to cut the central bank's key rate by 25bp to 4.75%, bringing it to a new historical low.
    Most market players had expected the 25bp cut, although some had thought a 50bp reduction more likely. MNB Monetary Council members said after their previous rate-setting meeting late in March they could consider a further reduction in rates if inflationary pressure remains moderate and financial market uncertainty wanes.
     "In terms of future monetary policy decisions, members agreed that the Council would only consider a further reduction in the policy rate if medium-term inflationary pressures remained moderate and the uncertainty surrounding financial market developments diminished," according to the minutes of the meeting.
    Hungary's CPI fell to 2.2% in March, the latest data show, well under the MNB's mid-term 3% inflation target. In a statement published after the meeting, the Council said macroeconmic data released in the past month had confirmed the disinflationary effect of weak demand, thus limiting pass-through of higher production costs. "On this basis, the outlook for inflation and the real economy are consistent with a lower base rate," the Council said. "Further reductions in the key rate could be made if the mid-term inflationary outlook remains in line with the 3% target and favourable financial market trends persist," it added.
    Pass-through of the increased tax burden for businesses "could be slow and partial" in light of the output gap, according to the statement. The bigger tax burden could gradually affect the entire business sector, raising core inflation adjusted for indirect tax effects, it added. "Inflation could stay under the 3% target for all of this year and come close to the target in 2014," it added.
    The low inflationary environment could cause real wages to start rising again, but the drawn-out process of deleveraging debt accumulated before the crisis and the uncertain economic environment have made households' behaviour "persistently cautious", the Council said. "Consumer demand might not pick up until 2014," it added.
    The Council noted a favourable appetite for risk on global markets and a "significant reduction" in the risk premium on Hungarian financial assets, but said real economic performance remained weak in spite of the positive global environment "which justifies cautious monetary policy steps". The condensed minutes of the Council's meeting will be published at 2pm on May 15.

ADVERTISEMENT

Czech economic confidence weakens in November Analysis

Czech economic confidence weakens in November

Lawmakers approve residency permit for digital nomads Parliament

Lawmakers approve residency permit for digital nomads

The strongest move - Morgan Stanley Hungary head and Chess F... Podcasts

The strongest move - Morgan Stanley Hungary head and Chess F...

New Jewish cultural hub opens in Budapest City

New Jewish cultural hub opens in Budapest

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.