UPDATE 1-Hungary cbank keeps rates on hold, outlook murky
Reuters
Published Apr 20, 2009 08:30AM ET
(Updates with background, analysts)
BUDAPEST, April 20 (Reuters) - Hungary's central bank left
interest rates
This is the third month running that rates have been left on hold.
Previously, the bank cut had rates by a combined 200 basis points between November and January, rolling back most of a 300 basis point emergency rate hike delivered in October before Hungary secured IMF-led aid worth $25.1 billion.
Markets did not react to the rate decision as 19 of 20 analysts surveyed by Reuters last week projected unchanged rates. Also, analysts said a weaker forint and a bigger than expected tax hike by the country's new government have erased hopes for any near term rate cuts.
"A larger-than-expected VAT hike pushes the inflation trajectory substantially higher, (the) year-on-year inflation rate being close to 7 percent," Daniel Bebesy, an economist with Budapest Fund Management said.
"The impact of the weaker forint is not obvious yet, but it is certainly an upside risk for the inflation path," he added.
Hungary's government announced on Sunday it would hike the value added tax rate to 25 percent from 20 percent, which could push the inflation rate to a peak of 6.5-7 percent by December, before a slowdown next year.
The central bank earlier said that low inflation -- 2.9 percent in March -- could allow for rate cuts but concerns over financial stability and a weak currency prevented such a move.
Analysts said the tax hike redrew the inflation outlook while financial stability has not improved significantly so a rate cut in the near future is not realistic, despite a bigger than expected recession in Hungary and Europe.
"It's unlikely that interest rates will change in the near future," Orsolya Nyeste, an economist at Erste Bank said. "If markets stabilise -- though the forint weakened in past days -- and the global market situation improves, the bank can probably avoid an interest rate increase."
(Reporting by Gergely Szakacs, Sandor Peto, Marton Dunai, Balazs Koranyi)
Get The News You Want
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.