Final cut brings Hungarian key interest rate to historic low

Hungary's National Bank cut the benchmark interest rate on Tuesday 15 basis points, bringing it down to a historic low of 1.35 percent.

At a news conference following the announcement, governor Gyorgy Matolcsy said this rate reduction would be the final one for now.

He said the move would be followed by "a lengthy loose monetary policy," a policy intended to encourage economic growth, underlining that the bank would continue to support government economic policy.

The bank has cut rates by 50 basis points since the start of this year and by 550 basis points since it began its easing cycle in 2012.

A written statement issued shortly after the rate decision predicted that Hungary's economy would continue to grow although there was still plenty of room to boost output and deflationary pressures still existed in parts of the economy.

International trade still needed improvement and although unemployment had declined "it still exceeded the long-term level defined by structural factors," the statement noted.

The statement said that core inflation had not changed when compared to the previous month. At the same time, it predicted that core inflation would gradually rise as domestic demand grew and wages and salaries improved.

Nonetheless, inflation, it wrote, would not reach the targeted 3 percent level until the end of the bank's medium term timeline (about a year and a half from now).

The global investor mood has not been favorable since the last rate setting meeting a month ago, according to the statement.