Hungary’s central bank unexpectedly slashed its key interest rate on Tuesday after holding it steady for seven successive policy sessions, as inflation is expected remain subdued in the coming months.
The Monetary Council of the Magyar Nemzeti Bank cut the base rate by 15 basis points to 1.20 percent, effective March 23.
Economists had expected the bank to leave the rate unchanged.
The central bank is set to unveil its latest macroeconomic forecasts in the Inflation Report to be released later on Tuesday.
The latest reduction probably marks the start of a modest easing cycle, Capital Economics economist William Jackson said.
“Today’s decision was probably triggered by a few factors including additional policy stimulus by the ECB, likely downwards revisions to the National Bank’s inflation forecasts…, and the weaker-than-expected activity and inflation data released over the past month,” the economist said.
“We expect a further 20bp or so of cuts in the coming months, bringing the policy rate to 1.0 percent by year-end.”
Inflation has remained substantially below the bank’s 3 percent target for some time, slowing to 0.3 percent in February.
Growth is expected loose some momentum in the first half of this year due to weaker emerging market activity and the deceleration in funding from the EU, the minutes of the February policy meeting revealed. However, the bank expects a recovery in the second half of the year, on the back of improvement in the country’s export markets and monetary and fiscal policy measures.
The material has been provided by InstaForex Company – www.instaforex.com