Following the MNB’s central interest rate cut last Monday, the Hungarian forint started strengthening on speculation that further monetary easing can be expected. The strengthening is contrary to the government’s intentions to create favorable conditions for the country’s exporters who are hit by the strong forint. “Our decision to cut the central rate has nothing to do with the amendment of the central bank law; it was motivated by slowing inflation and favorable investor sentiment,” MNB President Zsigmond Járai said, when explaining the central rate cut from 10.5% to 10%.
Járai felt an urge to make his statement after expectations rose that the MNB’s next central rate decision will include a reaction to the government’s plans to amend the law on the MNB. The MSZP-led coalition has passed a modification to the central bank law allowing the Prime Minister to nominate two members of the MNB’s Monetary Council. As a result of the amendment, the two new members can participate and vote at the next Monetary Council meeting, scheduled for Dec. 20.
The government initiated changing the central bank law after the MNB resisted lowering interest rates for more than two years, keeping the forint strong. While the government cited the need for low interest rates to fuel growth, the MNB reasoned that interest rates cannot be lowered as long as the rate of inflation is high. Analysts expect that further rate cuts can be expected before the end of the year, and their suspicion was partly confirmed by Járai, who said he sees room for further cuts.
As the rise of crude oil prices comes to a halt, the U.S. dollar remains weak and domestic real wages stay level, analysts say there’s a good chance that inflation can fall in Hungary. Analysts now expect that currency markets will give the government a few months until it fixes the state administration.
Járai felt an urge to make his statement after expectations rose that the MNB’s next central rate decision will include a reaction to the government’s plans to amend the law on the MNB. The MSZP-led coalition has passed a modification to the central bank law allowing the Prime Minister to nominate two members of the MNB’s Monetary Council. As a result of the amendment, the two new members can participate and vote at the next Monetary Council meeting, scheduled for Dec. 20.
The government initiated changing the central bank law after the MNB resisted lowering interest rates for more than two years, keeping the forint strong. While the government cited the need for low interest rates to fuel growth, the MNB reasoned that interest rates cannot be lowered as long as the rate of inflation is high. Analysts expect that further rate cuts can be expected before the end of the year, and their suspicion was partly confirmed by Járai, who said he sees room for further cuts.
As the rise of crude oil prices comes to a halt, the U.S. dollar remains weak and domestic real wages stay level, analysts say there’s a good chance that inflation can fall in Hungary. Analysts now expect that currency markets will give the government a few months until it fixes the state administration.