Tuesday, June 24, 2014

Hungary cuts rate 23rd time, cautious easing may follow

    Hungary's central bank cut its base rate by 10 basis points to 2.30 percent, its 23rd rate cut in a row, and said a "further cautious easing of monetary policy may follow" in light of the outlook for inflation and the perceptions of risk associated with the economy.
    However, the National Bank of Hungary, which has now cut rates by 470 basis points since embarking on an easing cycle in August 2012, added that rates had now "significantly approached a level which ensures the medium-term achievement of price stability and a corresponding degree of support for the economy."
    In May the central bank issued the guidance that it would decide whether to cut the rate again in June after a comprehensive assessment of the economy.
    In its latest quarterly inflation report, the central bank lowered its forecast for inflation this year to an average of zero percent, sharply down from its March forecast of 0.7 percent.
    For 2015 the bank forecast inflation of 2.5 percent, with prices moving into line with the bank's 3.0 percent inflation target in the second half of the year.
    "After reviewing the projection in the June report, the Council judges that there remains a degree of unused capacity in the economy and inflationary pressures in the economy are likely to remain moderate for an extended period," the bank said in its policy statement.

     In May Hungary's inflation rate was steady at minus 0.1 percent, the same rate as in April, with low inflation due to unused capacity in the economy, subdued inflation in external markets, moderate wage growth, a decline in inflation expectations and last year's 20 percent cut in household utility prices by the government.
    Supported by the easing of monetary policy by the central bank, Hungary's economy is strengthening and the bank forecast economic growth this year of 2.9 percent, up from its March forecast of 2.1 percent, and 2.5 percent next year. In 2013 the economy expanded by only 1.1 percent.
    In the first quarter of this year, Hungary's Gross Domestic Product expanded by 1.1 percent from the previous quarter for annual growth of 3.5 percent, up from 2.7 percent in the fourth quarter, and the fourth consecutive quarter of growth after five quarters of contraction in  row.


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