Hungary council reduces base rate to 3.2% as inflation keeps falling

By Tali David

Minneapolis, Nov. 26 - The Monetary Council of the Magyar Nemzeti Bank voted to reduce its central base rate by 20 basis points to 3.2% from 3.4% at its meeting on Tuesday, according to a press release.

The council of the Hungarian central bank said the expansion of the Hungarian economy is likely to continue this year, followed by a further pick-up in growth next year. While the pace of activity is strengthening, the level of output remains below its potential, and high, but falling, unemployment exceeds its long-term level determined by structural factors.

The council expects external economic activity to strengthen gradually and weak domestic demand conditions to persist. As a result, inflationary pressures in the economy are likely to remain subdued in the medium term.

Inflation continued to fall in October, mainly reflecting developments in food and administered prices, in addition to the decline in fuel prices. 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 and the external environment.

The preliminary estimate of GDP growth for the third quarter suggests a gradual improvement in the outlook for economic growth. Growth is expected to pick up further in the coming quarters, with both exports and domestic demand components likely to be contributing to this, the release said.

Overall, the global financial environment has been volatile recently, due to uncertainty about the future of non-conventional measures used by global central banks. There has been a slight deterioration in perceptions of the risks associated with the Hungarian economy, simultaneously with a new wave of capital outflows from emerging markets.

In the council's judgment, the global financial environment remains supportive overall, but volatile sentiment in global financial markets continues to pose a risk, which in turn calls for maintaining a cautious approach to policy.

The abridged minutes of the council meeting will be published on Dec. 4.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.