MNB cuts key rate by another 15 bp, down to 2.85%
The Monetary Council of the National Bank of Hungary (MNB) decided to reduce the central bank’s key rate by 15 bp to 2.85% at its meeting on Tuesday, in line with general expectations. Analysts had expected rate-setters to slow the easing cycle, estimating a cut of 10-15 bp.
The Council reduced the base rate by 25 bp at each of its monthly rate-setting meetings for twelve months from August 2012 until last August, when it started making 20 bp cuts.
In a statement published after the meeting, the Council acknowledged the effect of government mandated cuts to utilities prices on slowing inflation, but said inflationary pressures in the economy was “likely to remain subdued over the medium term,” noting the negative output gap, weak domestic demand and low inflation on external markets. The Council said economic growth was “expected to continue” in the coming quarters, supported by domestic demand as well as higher exports.
While corporate investment is set to rise because of the MNB’s Funding for Growth scheme and European Union-funded government infrastructure projects, the recovery in household consumption “is likely to be gradual.”
Achieving the MNB’s 3% mid-term inflation target “points in the direction of monetary easing,” the Council said. But it added that a “sustained and marked” shift in risk perceptions associated with Hungary’s economy could influence the room for monetary policy manoeuvre.
“Considering the outlook for inflation and taking into account perceptions of the risks associated with the economy as well as the improvement in the pace of economic growth, further cautious easing of monetary policy may follow, but a reduction in the increment has become warranted,” the Council said.
The condensed minutes of the meeting on Tuesday will be published on February 5.
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