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Hungary Faces Trend Reversal in Monetary Policy

Published: January 25, 2014; 10:31 · (Vindobona)

The Hungarian National Bank (MNB) has cut the reference rate to 2.85% from 3.00%. The end of the easing cycle is not reached yet.

Hungary Faces Trend Reversal in Monetary Policy / Picture: © Flickr

In the last 18 months, the Hungarian National Bank has lowered the base rate gradually from 6.75% to 2.85%. According to the MNB, the main objective remains boosting Hungary´s economic long-term economic growth by financing new investments.

For the first time since 2012, the base rate reduction was lower than 20 bps. The current base rate of 2.85% is an all-time low in Hungary.

According to economists, the current interest cut does not mark the end of the easing cycle, however. In the second half of 2014, the rate is expected to come at 2.50%.

The interest reduction is completed by the lending policy of the MNB. In order to overcome the credit crunch, the Hungarian National Bank has launched an economic stimulus program. MNB has provided about € 9bn to small and medium-sized enterprises.

In the past years, the massive capital inflows in emerging markets allowed the MNB to cut the rates. At the end of this year, economists anticipate a trend reversal, which reflects the end of the excessively loose monetary policy in the U.S. Per month, the FED has acquired assets in the amount of $ 85bn. Emerging markets like CESEE were among the main profiteers. Already in summer 2013, however, the FED announced that the program will come to an end in the course of 2014.