European Economic News
11/4/2009 11:48 PM ET
(RTTNews) -
Thursday, the minutes of Hungary's monetary council meeting of October 19 showed that members were not unanimous in the decision to bring down key interest to 7% from 7.5%. However, all members agreed that it was necessary to bring down the rate.
While five of the council members agreed to reduce the rate by 50 basis points, four members wanted the rate to be brought down even further. Three members were in favor of reducing the rate by 75 basis points, while one member voted to bring the rate down by 100 basis points. The interest rate at 7% is the lowest since July 2006.
Council members agreed that the real economy was characterized by subdued demand, and the risk of inflation undershooting the Bank's 3% target had increased. Some members thought the drop in domestic demand would place excessive burden on the economy, and therefore improvement in external balance would be greater than justified.
The members felt that with reduction in risks to financial stability and an improved sentiment in the economy, there was room for maneuvering interest rate policy. A few members pointed out that financial markets remained fragile and therefore presented the biggest risks to monetary policy, going forward.
Some members said the rise in unemployment and labor market adjustments was strong, but members were divided about whether the downturn in the world economy would entail just one dip or several dips. Moreover, members wondered if the stimulus put in place in world economies would unwind. Also, members believed that the risk that domestic consolidation would take longer than elsewhere had increased.
Meanwhile, several members pointed out that the upgradation of Hungary's rating outlook from negative to stable was a positive development.
by RTT Staff Writer
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