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Hungary reduces base rate to 3.4% with inflation pressures still low
By Marisa Wong
Madison, Wis., Oct. 29 - Magyar Nemzeti Bank's Monetary Council voted to reduce the central bank base rate by 20 basis points to 3.4% from 3.6% at its meeting on Tuesday, according to a bank press release.
The new rate is effective Oct. 30.
The council made its decision after reviewing the latest economic and financial developments, which suggest that inflationary pressures remain low.
Recent movements in the consumer prices index have also reflected temporary effects, the bank said.
The bank's measures of underlying inflation capturing medium-term developments in inflation remained broadly unchanged relative to previous months. The low rate of underlying inflation since the beginning of the year reflects the disinflationary impact of weak domestic demand, the council noted.
The low inflation environment may help anchor inflation expectations, the council said, adding that as a result inflationary pressures are likely to remain moderate, close to the target over the medium term as the temporary effects wane.
The bank said that in the current environment, monetary policy can contribute to meeting the inflation target over the medium term by maintaining accommodative monetary conditions.
The council commented that it believes the Hungarian economy is likely to expand gradually this year, followed by a further pick-up in growth next year. Both exports and domestic demand components will support this gradual improvement.
Perceptions of the risks associated with the Hungarian economy have improved over the past month, but changes in sentiment in global financial markets continue to pose a risk. The council said this calls for maintaining a cautious approach to policy.
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