Hungarian central bank cuts benchmark rate to 1.95 pct

The Hungarian central bank's rate-setting Monetary Council reduced the bank's benchmark two-week deposit rate by 15 basis points, to 1.95 percent, the bank announced on Tuesday.

The rate cut was widely anticipated by analysts after statements issued earlier by the bank cited very low inflation rates and hinted that it would renege on a July decision to leave rates on hold through the end of the year after gradually bringing them down to 2.10 percent over a two-year timeframe.

A statement issued by the bank predicted that inflation would remain low, possible shifting to deflation, and it would consider careful reductions in the interest rate for as long as the move supported the medium term inflation target of 3 percent.

The Monetary Council noted that while its inflation target was its primary consideration, it was also paying close attention to the real economy and financial stability.

Current global monetary conditions are loose, the bank wrote, citing the European Central Bank's asset purchase program and the Federal Reserve's decision not to alter its monetary policy tools.

In Hungary, the bank anticipates below-target inflation on short term although increases in domestic demand and salaries were likely to push core inflation slightly upward.

Hungary is doing well on the international money market, the Council found. It has been able to finance its debt from the market while it is increasingly viewed as a reliable debtor, which has reduced its risk premiums.

Long-term yields on forint bonds have remained unchanged since December, which in the past quarter the forint has appreciated slightly against the euro. Endit