Hungary sees inflation dropping, investor confidence increasing: minutes report

By Richard Connell

New York, Oct. 7 - The Monetary Council of the Magyar Nemzeti Bank, forecasting inflation falling to the inflation target amid renewed investor confidence, cut its central bank base rate by 50 basis points to 7½% at its meeting on Sept. 28, according to minutes released on Wednesday.

The council of the Hungarian central bank noted that CPI inflation in August was down 0.1% to 5% due to reduced domestic demand and lower food prices.

The council also pointed out that the GDP of Hungary contracted by 7.5% in Q2 2009 on a year-over-year basis as both exports and industrial production dropped markedly.

Looking forward, the council forecast that inflation was likely to drop below the target level of 3% in the medium term as the global economy continued to stabilize.

The council also showed optimism regarding investor sentiment toward Hungary, reflected in a strong demand and oversubscription in the primary market for government securities and a fall in yields on forint-denominated assets.

All members of the council were in favor of the easing of monetary policy with one member voting for a cut of 75 bps and the other eight voting in favor of a cut of 50 bps to 7½%.

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