Hungary council member proposed lowering base rate, minutes reveal

By Angela McDaniels

Tacoma, Wash., Oct. 6 - The Monetary Council of the Magyar Nemzeti Bank's vote to leave its central bank base interest rate unchanged was not unanimous, according to minutes from the council's Sept. 27 meeting.

As previously reported, the council of the Hungarian central bank left the rate at 5¼%.

The minutes, released Wednesday, said that six members of the council voted to leave the rate unchanged and one voted to reduce the rate to 5%.

The majority of council members took the view that the outlook for inflation had not changed in the past month and, therefore, interest rate policy should adopt a wait-and-see approach.

Another argument put forth in favor of waiting was that the Hungarian government had not yet released its economic policy plans to meet the fiscal deficit target.

The minutes stated that some members thought that domestic demand might fall back more sharply and for longer than in other countries due to the high household debt and, therefore, the room for maneuvering in interest-rate policy was also different than other countries.

Some members, however, said that monetary policy should respond immediately to potential future rises in inflation risks because at the moment inflation could be reduced at much lower costs as a consequence of the balance sheet effects for households.

From July to August, Consumer Price Index inflation fell by 0.3 percentage points to 3.7% and core inflation increased by 0.2 percentage points to 1.5%, according to the minutes.

The council's inflation target is 3%, and it believes inflation will ease back toward this target on the current horizon for monetary policy, due primarily to persistent weak domestic demand.

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