Tuesday, April 29, 2014

Hungary cuts rate by 10 bps, 21st cut in a row

    Hungary's central bank cut its base rate by a further 10 basis points to 2.50 percent, its 21st consecutive rate cut, but made no further immediate comment.
    The National Bank of Hungary has now cut its rate by 450 basis points since embarking on an easing cycle in August 2012.
    Last month the bank signaled that it was likely to pause with further cuts, saying the base rate had approached a level that would ensure prices stability and support for the economy.
    From August 2012 until July 2013 the central bank cut its base rate in 25-basis point increments but starting in August 2013 the size of the cuts were trimmed to 20 basis points as the bank was aware of the need to keep rates high enough to attract global investors who had started to reassess their view of the attractiveness of investing in emerging markets.
    In January and February this year, the central bank further reduced the size of rate cuts to 15 basis points and in March the cut was 10 basis points, as today.
    Hungary's headline inflation rate was steady at 0.1 percent in March and February and the central bank has said it expects inflation to remain below its 3.0 percent target this year at an average of 0.7 percent before moving into line with the target from next year.

    Hungary's economy dived into recession in 2012 but rebounded last year and the central bank has said it expects growth to continue this year, supported by exports that are expects to play an important source of growth in coming years and investments that are likely to pick up more gradually.
    In March the central bank forecast 2.1 percent economic growth for 2014 and 2.5 percent for 2015, up from 1.1 percent in2013.
    The country'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.
    Hungary's forint currency has been weakening against the euro since mid-2012 and depreciated by 2 percent in 2013 and has continued to ease this year. Today it was quoted at 309.28 to the euro today,  down 3.9 percent this year.
    Last week the central bank changed its main instrument for managing liquidity, replacing the two-week bill with a two-week deposit facility from Aug. 1.
    The move is an attempt to reduce the country's external debt by motivating domestic banks to hold more forint-denominated government debt as deposits with the central bank will no longer be accepted as collateral against loans. The bank hopes that funds up to 1 trillion forints, including 600-800 billion held by foreign banks, would be swapped into government debt from two-week deposits.




Post a Comment