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Hungary to Prop Up Economy
World Economy

Hungary to Prop Up Economy

Hungarian policymakers left borrowing costs unchanged at a record low after the central bank signaled it would rely on different policy tools to ease monetary conditions and ward off an economic slowdown.
The National Bank of Hungary kept the three-month deposit rate at 1.35% on Tuesday for a fourth month, in line with the forecast of all 19 economists in a Bloomberg survey. The central bank will publish a statement explaining the decision in Budapest.
Hungary’s monetary authority, which has vowed to hold rates beyond the end of next year, this month pledged to expand the use of interest-rate swaps and deploy one or two other tools to prop up a slowing economy. Rate setters will probably present further unconventional measures while reiterating their commitment to unchanged borrowing costs, according to the Royal Bank of Scotland Plc.
“We remain of the view that the central bank is indirectly encouraging currency weakness via its quasi QE programs and the extended forward guidance in a bid to support slowing growth,” Gabor Ambrus, a London-based economist at RBS, said in an email before the rate decision.
The forint has gained 1.1% against the euro since the end of June, the fifth-strongest performance among 24 emerging-market currencies tracked by Bloomberg. It traded less than 0.1% stronger at 311.86 per euro in Budapest.
Inflation remains below the bank’s medium-term inflation target of 3% even as the effect of 2014 energy tariff cuts fade from the data. Prices rose 0.1% in October from a year earlier on higher food costs. Rate-setters expect prices to stay little changed on an annual basis this year and to grow by 1.9% in 2016.
Economic growth slowed 2.3% in the third quarter from a year earlier after 2.7% in the previous three months. The pace of expansion will slow to 2.9% this year from 3.6% in 2014, according to the European Commission. That would put Hungary behind the Czech Republic, Poland, Slovakia and Romania after recording the fastest growth among the European Union’s five largest eastern economies last year.

 

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