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Hungary: Central bank kept the base rate on hold at 8.50%
Mon, Jul 21 2008, 13:43 GMT
by Orsolya Nyeste
Erste Bank der oesterreichischen Sparkassen AG
At its today monetary meeting, the monetary council kept the base rate on hold at 8.50%, in line with market expectations.
In its statements the council has maintained its relatively hawkish tone by repeating that they are committed to the 3% inflation target. Tight monetary conditions help a decline in inflation and curb the possible indirect effects of inflationary expectations. The statement again pointed out continued inflation risks, stemming from global food, oil and raw materials prices. The council is ready to take the necessary steps for meeting the inflation target in the future. At the press conference, Vice Governor Ferenc Karvalits said that the decision was relatively unanimous although they had discussed three options, a rate cut, holding rates and a rate hike. He said that they concluded that holding rates was necessary to meet the inflation goals. As for the forint exchange rate, he said that the bank did not know whether this was a permanent shift or not. They can find out this in the longer term, which influences monetary policy decisions.
Assessment: the central bank seems to have maintained its cautious stance and communication, even after the fast forint appreciation seen in the last couple of weeks. We think that the base rate is at its peak now. No more rate hike is expected, provided that the forint exchange rate is able to preserve its strength. On the other hand, neither the council’s statement nor the press conference has suggested for us that the rate cutting process would start soon, thus the forint has again strengthened, after a small correction to the weaker side, seen this morning.
Published on Mon, Jul 21 2008, 13:45 GMT
Erste Bank
http://global.treasury.erstebank.com | Rainer.Singer@erstebank.at
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