The council put forward the same arguments for lower rates as last month: neither the domestic nor the global economies are subjecting Hungary to inflationary pressures, while domestic demand is weak, unemployment is high and economic output is below capacity.

As this situation is expected to continue, the monetary council sees room for further cautious rate cuts.

As the MNB is lending to banks at 0% interest in its funding for growth scheme, it has an interest in lower rates to save on its losses, analysts point out. This could cause the MNB to lower the base rate too much, they warn.

London-based analysts suggest that the MNB could reduce the rate to 3% if external factors do not change.

However, the series of rate cuts will come to an end soon, as both GDP and core inflation are rising, according to William Jackson of Capital Economics.

Source: Hungary Around the Clock

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