Central bank cuts interest rate again

In agreement with the analyst consensus, the government appointed rate-setters of National Bank of Hungary continued the easing cycle with another 25 basis point rate cut this week, lowering the benchmark interest rate to 6.25%.

What happened behind the scenes is likely to have been similar to the past two months when the four external members, nominated by the government, of the rate-setting Monetary council in favor of a rate cut outvoted the three more conservative central bank delegates, while the inflation outlook as well as uncertainty surrounding the outcome of credit talks with the EU/IMF would have prompted a more cautious approach, the financial website portfolio.hu writes.

Analysts polled by the site before the vote were unanimously expecting the rate-setting Monetary council to proceed with its recent series of rate cuts despite a mixed message of macro reports and market signals.

Among these were an unexpectedly high september headline CPI figure of 6.6%, released after the September rate decision, as well as the two fiscal consolidation packages announced by the government in early and mid-October, respectively, both of which consist of measures with an impact on tax and consequently boosting inflation.

Meanwhile, withdrawn plans to reduce the amount of bank tax to half the earlier amount in 2013, as well as the newly announced consolidation of local government debt (if warning signals from Prime Minister Viktor Orbán are realized) once again pose new threats to the stability of the banking system.