The National Bank of Hungary has defied market expectations and appeared to ignore cautioning remarks by the National Economy Minister, cutting the base rate by a bigger-than-expected 15 basis points. The bank cut the rate to a record low of 2.70%, keeping with last month’s pace of reduction. The market consensus had been for a cut of 10 basis points.
National Economy Minister Mihály Varga had said on Tuesday morning he was not pleased by the weak forint but trusted it would firm up. Varga told commercial TV2 that the 2014 budget had been drafted assuming a HUF/EUR exchange rate of below 300. He said he hoped Hungarian rate setters would make a responsible decision later in the day to ensure a rate which is fiscally feasible for the central budget, as well as good for exports and for borrowers with foreign currency-denominated loans.
The budget had been planned with strong reserves of 220 billion forints (EUR 711.5m), which could be built on if the forint stays weaker than planned, Varga said, adding that he trusted the currency would bounce back in coming months, because the fundamentals of the Hungarian economy do not justify a weak exchange rate. The forint weakened after the rate cut and passed the 310 mark to the euro, after trading at 308 before the rate decision.
-
Display
