Matolcsy, MNB: Easing cycle not over, further (smaller) rate cuts coming

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After again lowering the key rate by 0.25% to 4%, the Monetary Council of the National Bank of Hungary (MNB) announced yesterday that the nearly yearlong “easing cycle” would continue. 

Last month the council had hinted at a further reduction in rates “if justified by inflation and the real economy”, and MNB governor György Matolcsy stated yesterday that further rate cuts – albeit perhaps more likely to be at 0.10% – will be coming.

A statement from the MNB released after Tuesday’s meeting suggested such a slowing down of the cycle, with the Monetary Council deciding that “The significant reductions in interest rates so far and the volatile conditions in financial markets may justify changing the pace or extent of policy easing over the coming months.”

Matolcsy also stated in the post-meeting press conference that the central bank’s base rate could fall to as low as 3% before cuts ended and that inflation (historically low, according to the Monetary Council), financial stability and “the real economic situation” would be prime factors in further decisions about rate cuts as the easing cycle continues.

“A sustained and marked shift in perceptions of the risks associated with the economy may influence the room for maneuver[ing] in monetary policy,” read the council’s statement in part.

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