Hungary Central Bank Flags More Easing as Rate Cut to Record

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Hungary’s central bank pledged to press on with monetary easing to spur price growth after reducing its benchmark interest rate for a second month to a record low.

The National Bank of Hungary cut the two-week deposit rate to 1.8 percent from 1.95 percent on Tuesday, matching the reduction in March and the forecasts of all but two of 23 economists in a Bloomberg survey. Easing may continue “as long as it supports” reaching the inflation goal, the rate-setting Monetary Council said in a statement on the bank’s website.

“The only uncertainty was whether the Monetary Council was going to maintain the pace” of rate cuts, Vivien Barczel and Gergely Urmossy, economists at Erste Group Bank AG’s Hungarian unit in Budapest, said by e-mail. They forecast that the main rate will drop below 1.5 percent in the second half of the year.

The central bank returned to monetary easing in March after a seven-month pause as deflation reached the deepest since the 1960s. Consumer prices dropped 0.6 percent in March, well below the bank’s 3 percent medium-term target.

Forint Strengthens

The forint has strengthened 1.9 percent against the euro since March 24, when policy makers cut the main rate by 15 basis points, or 0.15 percentage point, less than most economists in a Bloomberg survey had forecast. The currency traded at 297.7 to the euro at 3:17 p.m. in Budapest, the strongest since reaching a 15-month high on April 14.

Central banks in most emerging markets have greater leeway to lower rates as inflation pressures remain subdued. The European Central Bank is undertaking quantitative easing and investors speculate that the U.S. Federal Reserve may delay monetary tightening until September, boosting investor appetite for riskier assets offering higher returns. Poland, Romania and Serbia have all reduced borrowing costs since March.

In Hungary, the inflation and economic outlooks “point in the direction of a reduction in the policy rate and loose monetary conditions for an extended period,” policy makers said in their statement.

Hungary’s central bank forecasts zero price growth this year and 2.6 percent in 2016. Data show that the inflation rate reached its low point in January, when consumer prices fell 1.4 percent, statistician Borbala Minary said on April 8.

“If the Fed doesn’t start tightening monetary policy in the summer, then rate cuts may resume in September,” Monika Kiss, an economist at Equilor Befektetesi Zrt. brokerage in Budapest, said by e-mail. The main rate may fall to as low as 1 percent later in the year, she said.

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