Tuesday, May 28, 2013

Hungary to consider further rate cuts if inflation on target

    Hungary's central bank, which cut its rate for the 10th time in a row to 4.50 percent, said it would consider cutting rates further if the "medium-term outlook for inflation remains in line with the Bank's 3 per cent target and the improvement in financial market sentiment is sustained."
    The forward guidance by the National Bank of Hungary has been similar for many months, indicating that the bank is likely to continue the cycle of monetary easing that started in August 2012.
    The contrast between benign financial markets and the weak outlook for global growth continues to pose a risk and this call for maintaining a cautious approach to policy, the central bank said.
    Hungary's central bank has now cut rates by 250 basis points since August last year and by 125 basis points this year alone.
    The central bank sounded a slightly optimistic tone about the outlook, saying Hungary's economy may recover from recession in the first half of 2013 due to a reversal of "adverse one-off shocks" at the end of last year though a sustained pick-up in growth is first likely from the end of this year  when demand from export markets improves.
    "In the council's judgement, the incoming economic data suggest that weak demand continues to exert a strong disinflationary impact on prices, and therefore companies have limited ability to pass on higher production costs into prices, while they are making stronger adjustments through the labor market," the central bank said in a statement after a meeting of its council.
    Hungary's inflation rate fell to 1.7 percent in April from 2.2 percent in March, continuing the trend of declining inflation since a peak of 6.6 percent in September 2012.
    "Recent trends in underlying inflation continue to reflect the strong downward pressure of weak domestic demand on prices," the central bank said, adding the risks of inflation will remain moderate in the medium term.
    The central bank targets inflation of 3.0 percent and said last month inflation was likely to remain below this target this year and settle around the target in 2014.
    Hungary's Gross Domestic Product expanded by 0.7 percent in the first quarter of this year for annual contraction of 0.9 percent, less than the 2.7 percent shrinkage in the fourth quarter.


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