Hungary sees lower inflation, cuts interest rate by 50 bps to 7%

By Richard Connell

New York, Oct. 19 - The Monetary Council of the Magyar Nemzeti Bank lowered its central bank base rate by 50 basis points to 7% at its meeting on Monday, according to a news release issued by the bank.

The council of the Hungarian central bank noted that inflation as measured by the CPI was below the bank's expectations over the past quarter, a result of reduced demand.

Looking forward, the council forecast that inflation will fall significantly below the 3% inflation target over the medium term.

The council also said that it expects domestic economic growth to resume in the middle of 2010, consistent with the recovery in the global economy.

The council also pointed out that the global appetite for risk has continued to increase, leading to a reduction in the risk premium required by foreign investors.

The council made the cut to 7% stating that a disciplined monetary policy is required to help reduce Hungary's vulnerability to shocks to its economy based on external factors.

The council hinted that further interest rate cuts were possible, but also warned that major risks remained regarding a full recovery of the Hungarian economy.

The council has now cut the rate at four straight meetings, by a total of 250 bps.

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