Hungary's central bank leaves benchmark interest rate on hold

The rate-setting Monetary Council of the National Bank of Hungary left the benchmark interest rate at 2.10 percent at its monthly meeting on Tuesday, a move in line with analyst expectations.

However, a statement issued by the bank suggests that if inflation remained flat in March, it would consider the possibility of a rate cut.

The 2.10 percent rate on two-week deposits was set last July, after a nearly two-year period of easing, bringing it slowly down from 7 percent.

In its analysis of the current situation, the bank said it expected the Hungarian economy to continue growing even though production was below potential and inflation was flatlining or even shifting to deflation. It cited the absence of inflation on international markets, continued high unemployment, and dropping oil prices for both headline and core deflation.

At the same time, it said it expected inflation to pick up slowly and reach the 3 percent mark, leading to price stability by the latter half of its forecast period.

Nonetheless, it acknowledged the possibility of downside risks triggered by longer-term deflation although none are apparent with the gross domestic product (GDP) having grown in 2014, an export surplus trend continuing, and household consumption on the rise.

The bank acknowledged the negative effects of political events in Greece and the Russia-Ukraine conflict on investor mood, but added that the Hungarian currency, the forint, had begun to strengthen against the euro. Another strong point of the economy, the bank noted, was its ability to finance itself and a declining national debt.

Nonetheless, given the European Central Bank's expansion of its asset purchasing program and other factors, it would consider further rate cuts once March inflation data was available. Endit