Central bank cuts base rate by 50 points

At the previous policy meeting in April, the Council had cut the base rate by 50bp.

“The volatile financial market environment and the risks to the outlook for inflation continue to warrant a careful and patient approach,” the Council said in a statement released after the meeting.

The Council noted it was constantly assessing incoming macroeconomic data, the outlook for inflation and developments in the risk environment and decisions on any further reductions in the base rate would be taken “in a cautious and data-driven manner”.

At a press conference after the meeting, Barnabas Virag, deputy governor of the central bank, said accelerating economic growth, historically high foreign exchange reserves, a persistent improvement in the current account balance and a cautious approach to monetary policy have contributed to an improvement in the country’s risk perception.

He said the volatile financial market environment and the risks to the outlook for inflation continue to warrant a careful and patient approach and that the Council was unanimous in its opinion that preserving financial market stability remains a priority.

Virag noted that high services inflation restrains disinflation and said the Council monitors closely the pricing dynamics in the services sector. He said the backward looking repricing in the service sector is a bad practice.

Answering a question, Virag said a base rate in the range of 6.75 percent to 7.00 percent in June “would be a realistic scenario”.

He noted that in the second half of the year, “the scope for further interest rate cuts is very, very moderate” and a more accurate picture, that could be put into numbers, could be given in the light of a macroeconomic forecast that will be published in June. There was “no place to rush” with cuts, he added.

Virag said the 50bp cut was the only option discussed at the meeting and the decision on the reduction was unanimous.