Hungary Raises Rate-Cut Threshold

Hungary’s central bank tightened the conditions for monetary easing after it cut borrowing costs to a record low in the first decision since Gyorgy Matolcsy took charge of rate policy. The forint strengthened.

The Magyar Nemzeti Bank reduced the two-week deposit rate by a quarter-point to 5 percent, cutting it for an eighth month and matching the forecast of 25 of 29 economists in a Bloomberg survey. Easing can only continue if uncertainty in the market environment abates, policy makers said in a statement.

“They’ve become more cautious and this is a positive surprise,” Eszter Gargyan, a Budapest-based economist at Citigroup Inc., said by e-mail.

Hungary’s currency had weakened as Matolcsy’s appointment sparked speculation over the direction of monetary policy, including the possible use of reserves to stimulate the economy and reduce foreign-currency loans. The country is in its second recession in four years and the central bank today said the inflation rate is headed below its 3 percent target “throughout” the horizon for monetary policy.

The forint jumped the most in more than a week, rising 0.9 percent against the euro to 303.43 by 4:02 p.m. in Budapest. That pared its loss to 2.7 percent in the past month, still the worst among more than 20 emerging-market currencies tracked by Bloomberg after the South African rand.

Bloomberg

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