Hungarian central bank further cuts benchmark interest rates

The rate-setting Monetary Council of the National Bank of Hungary cut the benchmark interest rate on two-week deposits on Tuesday from 3.60 percent to 3.40, in line with analyst expectations. This fifteenth consecutive cut since August of 2012 has set the interest rate at a new record low. The 3.40 percent benchmark rate is now less than half of the 7 percent rate in effect when the rate trimming process was first begun. The Monetary Council kept to the 20 basis point reduction pattern it started in August 2013. In a statement issued on Tuesday, the bank said it expected the Hungarian economy to grow and in particular, to liven up in 2014. At the same time, it acknowledged lower-than-possible output levels and high unemployment. The unemployment rate is currently 9.8 percent. These factors, it wrote, contributed to weak inflationary pressure on medium term. In September, the consumer price index rose by 1.4 percent year-on-year, slightly higher than anticipated but still low enough to encourage the rate cut. In fact, wrote the bank, if inflation continues to remain this low further rate cuts may be in the offing. The central bank considers Hungary's risk assessment level to have improved over the past month, triggered in part by the U.S. Federal Reserve's delays in reining in its asset-purchase program, and by Washington's recent budget crisis and its debt-ceiling concerns. The tensions on the global money markets have relaxed since then, but the volatility remains and suggests the need to maintain a conservative monetary policy. However, favorable risk assessments could increase the scope of monetary policy, and further careful interest rate cuts are not out of the question, according to the statement.