Hungary’s MNB says interest rates low enough for now

Budapest / AFP

Hungary’s central bank said on Thursday it was now ready to leave interest rates alone after cutting a key rate to a record level.
The bank, the MNB, cut the benchmark rate to a fresh record low of 0.9 percent Tuesday, in what it says is now the end of its third interest rate easing cycle since 2012.
“The MNB has no need to either cut or raise rates right now,” its deputy governor Marton Nagy told reporters in Budapest.
The cut earlier this week, aimed at boosting growth, was the third consecutive monthly cut by 15 basis points.
In a statement after the announcement, the bank said Hungary’s inflation and growth outlooks “point to maintaining the 0.9 percent base rate for an extended period”.
The key rate is “at an appropriate level right now”, Nagy confirmed. There is no need for further rate cuts and the key rate should remain unchanged “for as long as possible,” he said.
The MNB will only move if action is needed to meet its inflation target (of 3.0 percent), Nagy added.
The MNB cut the base rate for 24 consecutive months from August 2012 when the rate was seven percent, then again for five straight months from March in 2015.
It began a third easing cycle to revive inflation when the rate was 1.35 percent in March.
Hungarian inflation in May rose 0.2 percent year-on-year after a 0.2-percent decline the previous month, the first hike in inflation this year, but well below the MNB’s target.
Annual inflation in 2015 and 2014 was 0.1 percent, and 0.2 percent respectively.
To bolster growth, the MNB, whose governor Gyorgy Matolcsy is a close ally of Prime Minister Viktor Orban, also launched a Funding for Growth Scheme in 2013 to help firms access bank sector credit.
After a recession in 2012, GDP growth reached 3.7 and 2.9 percent in 2014 and 2015, with 2.0-3.0 percent forecast for this year.