"Sober, moderate, and disciplined policies are crucial, and we must continue our focused fiscal policy this year."Continue reading
The Monetary Council of the Hungarian National Bank (MNB) cut the base rate by 75 basis points to 10.00 percent at its first interest rate decision meeting of the year on Tuesday, and also lowered the two edges of the interest rate corridor by the same amount, reported MTI.
At its last policy meeting in December, the base rate was also cut by 75 basis points to 10.75%. The improvement in macroeconomic fundamentals would have allowed for a faster pace of interest rate cuts than at present, but the increased uncertainty in EU relations since last Monday had financial market implications, so the Monetary Council did not accelerate the pace of rate cuts, Barnabás Virág, Deputy Governor of the Hungarian National Bank (MNB), explained in an online discussion on Tuesday.
He said two options – a 75 and 100 basis point cut – were being discussed, as they were last December.
There was a large majority in favor of a 75 basis point rate cut at today’s Monetary Council meeting,”
he explained, adding that both the 75 and 100 basis point options will be on the table in February.
In the Monetary Council’s assessment, the Hungarian economy is experiencing broad-based and persistent disinflation, which will continue into the beginning of the year. Inflation is falling even faster than previously expected, with a good chance of reaching the top of the central bank’s target range this year. Inflation rates of around 4% are expected in January.
He also noted that geopolitical tensions remain, with disruptions to global value chains being exacerbated by the conflict near the Red Sea, which could cause transport costs to rise again. He called into question how sustainable these developments will be. Despite geopolitical tensions, European gas prices have remained moderate, he noted.
The inflow of EU funds is a positive development, according to the vice-president, but he also pointed to increased uncertainty about EU relations.
The rapid and significant improvement in the external position continued, with the current account likely to show a larger-than-expected surplus. Asked about the possible renewed disruption of EU funds, he said that this was based on an article, that contradictory information had been published and that “it is not worth basing monetary policy decisions on information that has not been accurately confirmed”. The question is whether or not this is a sustainable process.
Via MTI; Featured Image: Facebook MNB