Hungary’s central bank (MNB) cut the base rate by 15 basis points to an all-time low of 2.70% yesterday. This was quite unexpected since nearly every economic analyst had thought the reduction would be 10 bp and nobody predicted a 15 bp cut.
The Hungarian Forint went to 310.5 HUF/EUR after the announcement and today it has depreciated further.
Economy Minister Mihály Varga said before the decision yesterday that he “trusts the MNB will act responsibly in view of the current situation ” (that is the weak level Forint is at) He added that “we’re in the 310 HUF band now despite Hungary’s good and stable economic fundamentals and an external market shock may send the forint in the 320 or 330 band, though this would mean business as usual at least domestically “.
A lower base rate is certainly good for Hungary’s economic recovery and for increasing exports, besides it also reduces Hungary’s debt payment burden, but (mainly because of the very high FX loan exposure Hungarian households have) it carries a lot of risk, too. I keep my fingers crossed since our central bank now is skating on thin ice.