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Hungary's central bank cuts interest rate to 1.5 pct

Xinhua, June 23, 2015 Adjust font size:

The Hungarian central bank's monetary council cut its benchmark rate by another 15 basis points on Tuesday, reaching a record low of 1.5 percent.

A statement issued by the bank said loose monetary conditions appeared to be working towards sustaining the bank's medium-term inflation target and towards offering growth incentives to the real economy. The globally significant central banks all favored loose conditions, it noted.

On the short term, Hungary's inflation rate might be significantly below the 3 percent medium-term goal, the bank wrote, although rising fuel prices had generated a measure of inflation. Demand growth combined with rising wages also pushed core inflation into the positive zone. Nonetheless, it found that the 3-percent-target would not be attainable until the end of the targeted timeframe.

Hungary's economy continued to grow over recent months, spurred on by domestic demand which, it wrote, would continue to be the force behind economic growth. A growing labor market was also boosting real incomes, which in turn was causing consumption to pick up.

Meanwhile, measures to rid residents of expensive foreign currency loans in favor of forint-based ones had reduced their vulnerability and increased their spending potential.

Export growth had also become more dynamic, the report noted, predicting that the gap between exports and imports could close by the end of the medium-term timeframe.

Hungary has been able to finance its debt through the market and the interest rates on its debts have been going down as has the overall debt.

Net exports are likely to improve, partly because of increased external demand and partly because of the improved terms of trade triggered by the drop in oil prices.

The monetary council believes the Hungarian economy is still not running at capacity, which is keeping inflationary pressure in check. While monetary policy remains deflationary, the gap is slowly closing.

The council said further small reductions in the interest rate will continue to be possible. Endit