The National Bank of Hungary’s Monetary Council decided to reduce the base rate by 25bp to 5.75pc – a historical low – at a meeting on Monday.
The cut was in line with expectations, in light of inflation prospects, global appetite for risk and financial stability.
National Bank of Hungary Andras Simor said at a press conference after the meeting that a “convincing majority” of members had voted for the 25bp cut.
In a statement published after the meeting, the Council said further rate cuts are justified by the outlook for inflation and the real economy, but they will only take place if the country’s risk assessment allows it.
The Council said higher regulated prices had temporarily lifted CPI, but it would fall from the second half of 2010 and drop under the bank’s 3pc mid-term target in 2011. The NBH noted that global financial market trends continued to present significant uncertainty.
The decline in Hungary’s GDP slowed in Q4 as export demand grew, but domestic demand continued to fall, suggesting Hungary’s economy will come out of recession later than other economies in the region. Hungary’s external balance continued to improve because of the export and import trends, giving the country a big current-account surplus from the middle of 2009. The trend could continue in the mid-term, thus Hungary’s economy is not expected to require external financing, the Council said.
Although the mood on global markets became more uncertain in the past month because of worries about the sustainability of state debt of several developed countries, the assessment of the Hungarian forint was little changed. The big improvement in the country’s economic balance has reduced its vulnerability, but its high level of state debt and weak GDP data continue to present risks, the Council said.
In the interest of reducing Hungary’s vulnerability to external risks, a sustainable and disciplined fiscal policy must be followed in the long term, the Council added.
Mr Simor said it was not the fact of general elections in April that would influence further rate decisions, but the country’s risk assessment. In so much as the elections and the government’s programme after the elections influences the country’s risk assessment, it will affect the Council’s decisions, he added.
Now is not the time to decide on a date to adopt the euro, Mr Simor said. Hungary’s next government must make a decision on this matter, with the involvement of the central bank, he added.
Analysts told MTI the cut was either the last or the second-to-last in the Council’s easing campaign.
The condensed minutes of the meeting on Monday will be published at 14:00 on March 17.
At a meeting of the Council a month earlier, rate-setters said subdued demand and inflation prospects made room for further rate cuts, but most members believed developments on global financial markets still limited the pace of cuts, the condensed minutes of the meeting showed.
The NBH has reduced rates by a combined 375bp at each of its monthly meetings since July.