The rate-setting Monetary Council of the National Bank of Hungary surprised analysts on Tuesday with a 20 basis point cut in its two-week deposit rate, bringing down the rate to a record low of 2.1 percent, and at the same time announced the end of the easing cycle.
Analysts had expected a 10 basis point cut, as the bank continued its monthly decreases for the 24th consecutive time, trimming the benchmark back from 7 percent.
This, however, will be the final lowering of the interest rate, central bank governor Gyorgy Matolcsy told a news conference on Tuesday afternoon following the Monetary Council meeting, adding that he envisioned keeping the 2.1 percent through to the end of 2015.
The current rate was not set in stone though, he said, for however unlikely, if conditions change, so could the interest rate.
Analysts had more or less predicted an end to the rate cut cycle, saying it would bottom out at anywhere between 2.2 and 1.8 percent.
Matolcsy, who had shunned news conferences and instead issued written statements on the bank's website, broke with the habit on Tuesday and spoke to the media instead. A handout distributed to the press stated that "the benchmark rate had reached the level which would guarantee that the inflation target would be met on medium term and would also offer the real economy satisfactory incentives."
The past 24 months of interest rate cuts, Matolcsy said, had boosted Hungary's gross domestic product (GDP) by 1.1 percent, and had increased mean annual inflation by the same amount. In other words, he said, if not for the rate cuts inflation would have been replaced by a roughly one percent deflation. He also estimated that the cost of interest on the national debt would go down by 300 billion forints (about 1.3 billion dollars) because of the lower interest rate.
The forint dipped slightly on news of the larger-than-expected cut, going from 309.50 per euro to 309.80 and from 228.85 per dollar to 229.70.