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Monetary Council cuts base rate by 50bp

The National Bank of Hungary's (MNB) Monetary Council voted to lower the base rate 50bp to 6.50% at a meeting on Monday, as expected by the market.

At a press conference following the meeting, MNB governor András Simor said council members voted by a “decisive margin” to reduce the rate by 50bp. There were two other proposal at the meeting: one for a 25bp cut and another for a 75bp cut, he added.

Because of the drawn-out recession, there is no inflationary pressure in the economy and CPI will significantly undershoot the mid-term inflation target, Simor said.

The bank lowered its inflation projection for 2011 in its latest Quarterly Inflation Report - discussed at the meeting on Monday and to be published in full on Wednesday - to 1.9% from 2.1% in the previous forecast.

In a statement released after the meeting, the bank said rate-setters had made their decision in light of lower-than-expected consumer price inflation over the past few months and improved risk perception.

“Interest rates may be reduced further, if this does not threaten the inflation outlook and if shifts in perceptions of risks associated with the economy allow it,” the bank said.

The MNB noted that the pace of the increase in risk appetite had been faster than would be justified by improvements in global economic fundamentals, adding that that the domestic economy continues to be vulnerable to shocks. Together, the factors require “caution in policy-setting“.

The Council discussed the latest Quarterly Report on Inflation at the meeting. The report will be published in full on Wednesday.

The condensed minutes of the meeting on Monday will be published at 2pm on December 9, 2009.

The MNB has reduced rates by a combined 300bp at each of its monthly meetings since July. At the previous meeting on October 19, rate-setters voted 5:4 for the 50bp cut as four Council members supported bigger cuts of 75bp and 100bp. Council members at the meeting agreed that risks to financial stability had declined, increasing the room for rate cuts, but some warned that financial markets were still fragile and that there could be a second leg of the financial crisis in Europe, the condensed minutes showed. (MTI-ECONEWS)