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National Bank defiant

February 21st, 2014

A business daily thinks the Hungarian National Bank intended to flex its muscles  when it decided to cut its main interest rate again earlier this week, although the Forint lost approximately three per cent of its value to the main currencies over the past two weeks.

The Hungarian National Bank (MNB) cut interest rates by further 15 base points on Tuesday, on the premise that since inflation is low, there is still room for encouraging borrowing through lower rates. Since then, the national currency dropped to a new low of over 313 HUF to the Euro. MNB chief György Matolcsy has even been warned by Mihály Varga, the Minister for National Economy (who is Matolcsy’ successor in that post) that the exchange rate was too high for the economy. (See also BudaPost January 25.)

In Világgazdaság, József Hornyák thinks although Matolcsy resorted to the latest cut arguing that inflation was negligible, after discounting the short term effects of utility tariff cuts, core inflation is in fact closer to 3% than to zero. On the other hand, Matolcsy intends to help the economy fulfil PM Orbán’s prediction of 4% GDP growth in 2016. In any case Hornyák believes, there is no room for further monetary easing, as the low interest rates are becoming a burden for the economy. Investors, in fact may sense an opportunity by attacking the forint and forcing an abrupt increase in interest rates. Matolcsy appears to have taken up the gauntlet – the most recent cut carried the message that the MNB is ready to face any attack.

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