Entries RSS Feed Share Send to Facebook Tweet This Accessible version

Base rate cut to a record low

July 24th, 2014

As the Monetary Council lowers the base rate to a historic low and announces the end of the easing cycle, columnists on both left and right acknowledge that Central Banker Governor Matolcsy’s bold and often criticized steps have proven valid.

On Tuesday, the Monetary Council cut the base rate by 2 bps (against the consensus forecast of a 10 bp cut) to 2.1 per cent. Central Banker György Matolcsy announced that the 24-month easing cycle, which has reduced the rate from 7 per cent in 2012, has come to an end and promised that the base rate would be left unchanged until the end of 2015. After the announcement of the rate cut, the Forint strengthened 0.5 per cent against the Euro.

Matolcsy was right that the base rate can be cut boldly, Népszabadság writes in a front page editorial. The leading left-wing daily, which in the past has been a staunch critic of Matolcsy, acknowledges that the unprecedented series of rate cuts has helped the Hungarian economy. The success of the easing cycle, however, has been conditional on external factors and if the favorable international economic conditions worsen, the National Bank may not be able to sustain the current low base rate, Népszabadság remarks.

Magyar Hírlap’s Csaba Szajlai also contends that the swift lowering of the base rate has been a success story. The conservative analyst points out that despite the risks of the bold rate cuts, in retrospect Matolcsy has proven to be right and the previous National Bank leadership under András Simor was wrong to keep the rate too high. Matolcsy’s unconventional steps have not been so unconventional, since they successfully boosted lending while at the same time keeping the trust of international investors, Szajlai notes. As for the future, the low interest rate may help to create new jobs and boost economic output, Szajlai believes.

Tags: , , ,