Hungary elects to cut central bank base rate by 100 bps to 8½%

By Richard Connell

New York, July 27 - The Monetary Council of the Magyar Nemzeti Bank cut its central bank base rate by 100 basis points to 8½% at its meeting on Monday, according to a release issued by the bank.

The monetary council of the Hungarian central bank assessed that the economy of Hungary is undergoing a severe downturn this year and that a rapid recovery in growth seems unlikely in the period ahead.

The council also noted that inflation rose in the second quarter of 2009, the result of a weaker exchange rate and shocks related to volatile components of the Consumer Price Index.

Looking forward, the council expects inflation to remain high for the next 12 months before falling below the medium-term inflation target.

The council did note a few bright spots while making the rate cut, including improved risk appetite and sentiment towards Eastern Europe as well as the successful issuance of the first foreign currency sovereign bond since the onset of the financial crisis.

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