Hungary cuts borrowing costs to record low

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Hungary cuts borrowing costs to record low

Hungary cuts borrowing costs to record low
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For the 10th month running Hungary’s central bank has reduced its main interest rate by 0.25 percent.

It is now at 4.5 percent, down from seven percent, with further cuts expected.

The government is taking advantage of record low inflation to reinvigorate the economy, which remains weak, despite being one of very few European countries to achieve growth in the first three months of this year.

After a recession last year, the government predicts growth for the whole year of 0.7 percent, the same as the quarter-on-quarter rise between January and March.

Inflation is set to be just above the central bank’s 3.0 percent target, having hit 6.6 percent last September.

The deficit is forecast by the government to be just 2.7 percent of GDP.

The European Commission is not so optimistic – either for growth or deficit reduction – and it is not convinced that Prime Minister Viktor Orban’s government can keep the budget deficit below the three percent EU limit.

The country is currently being monitored under the so-called excessive-deficit procedure which Orban has called “unjust”.

As well as cutting interest rates to promote growth, Hungary’s central bank is about to launch a programme to help small firms.

The ‘Funding for Growth’ plan will allocate the equivalent of 1.7 billion euros in zero-interest funding to commercial banks to boost lending to companies.