Hungary's central bank cuts interest rate to 0.9 percent

In line with analyst expectations, the National Bank of Hungary cut its benchmark interest rate by 15 basis points on Tuesday, reducing the rate to 0.90 percent for an all-time low.

It also cut the interest rate on overnight loans to 1.15 percent from 1.30, but left the rate for overnight deposits at minus 0.05 percent.

A statement issued by the bank's rate-setting Monetary Council predicted that April's halt in growth was temporary and that the economy would quickly return to a growth path although on short term inflation would remain quite low, well below the bank's 3 percent target.

Wages, however, were rising as was domestic consumption and core inflation. Nonetheless, the council did not expect the targeted 3 percent inflation rate to be reached before early 2018.

First quarter GDP was down compared to the December 2015 rate, triggered, said the council, by less European Union funding and a related building industry slowdown. Industrial stoppages also affected the numbers, the statement noted.

At the same time, employment has increased and the jobless rate has declined, so the bank expects moderate growth dynamics in the first half of the year and more powerful growth in the second half. It expects to see more home construction and more EU funding, and predicts a growth rate of about 3 percent overall.

Meanwhile, the council noted, Hungary's ability to reduce its foreign currency debt and capacity to service its debts has resulted in the Fitch ratings agency upgrading Hungary's credit rating to BBB minus with a stable outlook, which is investment grade.

The council stated that in its view the 0.9 percent benchmark interest rate would be sufficient to achieve the targeted inflation, suggesting that it would not be making any further rate cuts in the immediate future. Endit