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Base lending rate cut to 2.3%

Analysis

The Monetary Council of the Hungarian National Bank reduced the central bank's base lending rate from 2.4% to 2.3% at its meeting today.

The Council noted that it has significantly reduced the base rate since August 2012, and with prices actually falling in recent months, there is no threat of inflation from efforts to ease the money supply.

"The reductions in the base rate during the period were justified by the low inflation environment, subdued medium-term inflationary pressures and a degree of spare capacity in the economy," a statement from the Council said. "Risk perceptions associated with the economy were also generally supportive. In the Council’s judgement, the significant easing of monetary policy implemented so far has helped the Bank achieve the inflation target in the medium term and has contributed to the strengthening of domestic economic growth."

The Council also announced its own projections for the economy. Its key observations include the following:

• "Inflation is likely to remain low for an extended period and to reach levels around 3%, consistent with price stability only at the forecast horizon. ... inflation is likely to remain well below the 3% target in 2014, before moving into line with the medium-term inflation target from the second half of 2015."

• "In the Council’s judgement, the Hungarian economy returned to a growth path in 2013. Looking ahead, economic growth is likely to continue."

• "Economic activity has picked up gradually in the past quarters, with output rising across a wide range of sectors. Looking ahead, Hungarian economic growth may continue in a more balanced pattern than previously. Rising exports are likely to play an important role as a source of growth in the coming years as well. In addition, domestic demand is also expected to strengthen further."

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