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Hungarian Central Bank Slashes Main Rate, Forint Retains Appeal

April 29, 2014 at 20:40 by Vladimir Vyun

Many Hungarian 20,000-forint billsThe Hungarian forint advanced today even after the nation’s central bank reduced its main interest rate. The bank was not particularly pessimistic despite the interest rate cut, helping the currency to retain its appeal.

The Magyar Nemzeti Bank (Hungary’s central bank) cut the central bank base rate by 10 basis points to 2.50 percent. The bank was rather optimistic despite the cut, saying:

In the Council’s judgement, Hungarian economic growth is likely to continue. However, while the pace of economic activity is strengthening, output remains below its potential and is likely to return close to that level during next year.

The inflation estimate was less shiny:

The Bank’s measures of underlying inflation capturing the medium-term outlook remained broadly unchanged and continued to indicate moderate inflationary pressures in the economy, which reflects the effects of weak domestic demand and low inflation in external markets. The persistently low inflation environment may provide a firmer anchor for inflation expectations.

Overall, though, the MNB looked in the future with confidence:

Growth is expected to pick up gradually in the quarters ahead and to return to a more balanced pattern, with domestic demand likely to make an increasing contribution.

USD/HUF was down 0.20 percent to 223.26 as of 20:37 GMT today. EUR/HUF fell from 309.8300 to 308.3100.

If you have any questions, comments, or opinions regarding the Hungarian Forint, feel free to post them using the commentary form below.

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