MNB easing cycle could continue

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The National Bank of Hungary's Monetary Council said members could consider a further reduction in rates if the outlook for inflation is in line with the central bank's mid-term 3% "price stability" target and financial market sentiment is unchanged, according to the condensed minutes of a rate-setting meeting on May 27.
    "In terms of future monetary policy decisions, members agreed that the Council would only consider a further reduction in the policy rate if the medium-term outlook for inflation remained in line with the bank’s 3% target and the improvement in financial market sentiment was sustained," according to the minutes published on Wednesday.
    The Council decided at the May meeting to cut the central bank's key rate by another 25bp - to 4.50% - for the tenth monthly meeting in a row. The decision, which was in line with market expectations, brought the rate to a new historical low.
    In a statement published after the meeting, the Council said it would consider a further reduction in the policy rate " if the medium-term outlook for inflation remains in line with the bank's 3% target and the improvement in financial market sentiment is sustained".
    According to the minutes, the Council judged that fresh data suggested pass-through of higher production costs to consumers was limited because of the "strong disinflationary impact" of weak demand and decided the outlook for inflation and the real economy was "consistent with a lower central bank base rate". The Council also noted that Hungary's risk indicators had fallen further, but it added that the persisting contradiction between weak outlook for global growth and the benign financial market environment "called for maintaining a cautious approach to policy".
    The minutes show that all seven of the Council members voted unanimously for the 25bp reduction.

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