Tuesday, March 25, 2014

Hungary cuts rate for 20th time but signals pause

    Hungary's central bank cut its base rate by 10 basis points to 2.60 percent, its 20th rate decrease in a row, but signaled that it was likely to pause with further rate cuts, saying the base rate had "approached a level which ensures the medium-term achievement of price stability and a corresponding degree of support for the economy."
    The National Bank of Hungary, which has now cut rates by 440 basis since embarking on an easing cycle in August 2012, added that it did not see scope for continuing the easing cycle, even if global financial markets were to significantly deteriorate.
     From August 2012 until July last year the central bank cut rates in 25-basis point increments but starting in August 2013 it reduced the pace of rate cuts to 20 basis points, aware that global investors were reassessing their view of investments in emerging markets and it had to keep rates high enough to attract funds. In January and February it then reduced the size of its rate cuts to 15 basis points.
    The central bank said there remains a degree of unused capacity in the economy and inflation is likely to move in line with the target in the medium term.
   "The negative output gap is expected to close gradually at the monetary policy horizon, and therefore the disinflationary impact of the real economy is likely to decrease looking forward," the bank said.
     Hungary's inflation rate rose to 0.1 percent in February from zero in January and the central bank expects inflation to remain below its 3.0 percent target this year before moving into line with the target from 2015.
    Hungary's economy went into recession in 2012 but rebounded last year and the central bank expects growth to continue, helped by exports that are expected to play an important source of growth in coming years and investments are also likely to pick up further, the bank said.
    Hungary's Gross Domestic Product expanded by 0.5 percent in the fourth quarter of 2013 from the third quarter for annual growth of 2.7 percent, up from 1.8 percent in the previous quarter.



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