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A first: Hungary bank pushes rate into negative territory

Thousands of large, old Hungarian banknotes are processed at a logistics center at the Central Bank of Hungary in Budapest on February 9, 2012. Hungary's central bank is pulping wads of old notes into briquettes to help heat needy humanitarian organizations, a gesture that has warmed many bodies and hearts amid a deadly cold snap. The central bank has been converting unusable notes into briquettes for the past four years. It takes about 5 million forints (17,000 euros) to make a single one-kilogram briquette. The notes are cut into pieces of 1 to 5 millimeters and then the paper is compressed without any chemicals being added. AFP PHOTO / ATTILA KISBENEDEK (Photo credit should read ATTILA KISBENEDEK/AFP/Getty Images)

Budapest / Bloomberg

Hungary’s central bank said it had lowered one of its interest rates into negative territory for the first time, faced with with a drastically weaker inflation outlook.
The rate for funds parked by commercial banks with the central bank overnight now stands at -0.05 percent.
The bank also cut its main interest rate to 1.20 percent, also a historic low, from 1.35 percent previously.
The central bank said further cuts would follow if needed for it to reach its inflation target of close to 3 percent.
The bank’s current forecast is for average inflation rate of 0.3 percent this year, slashed from its 1.7 percent estimate made in
December.
“Inflation expectations fell further and are at historically low levels,” it said.
Gross domestic product (GDP) growth of 2.8 percent is now expected for this year, up from a previous 2.5 percent estimate.
Earlier this month the ECB lowered to zero its leading “refi” interest for the eurozone, which is Hungary’s main trading partner, and pushed its overnight deposit rate down to -0.4 percent.
Hungary is a member of the European Union but not the eurozone.
The Hungarian National Bank is the central bank of the Hungary and as such part of the European System of Central Banks (ESCB).
The Hungarian National Bank was established in 1924 and succeeded the Royal Hungarian State Bank, which introduced the Hungarian forint on 1 August 1946. The Hungarian National Bank lays special emphasis on its international relations and on participation in the professional forums of international economic institutions and financial organisations (EU, IMF, OECD, BIS).
Its principal aim is price stability, but it is also responsible for issuing the national currency.

, the forint, controlling the moneyin circulation, setting the Central Bank base rate, publishing official exchange rates, and managing the foreign-exchange reserves and gold to influence exchange rates.

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