Hungary's central bank said Tuesday it had lowered one of its interest rates into negative territory for the first time, faced with a drastically weaker inflation outlook. The rate for funds parked by commercial banks with the central bank overnight now stands at -0.05 percent. The bank also cut its main interest rate to 1.20 percent, also a historic low, from 1.35 percent previously.
The central bank said further cuts would follow if needed for it to reach its inflation target of close to 3 percent. The bank's current forecast is for average inflation rate of 0.3 percent this year, slashed from its 1.7 percent estimate made in December. "Inflation expectations fell further and are at historically low levels," it said.
Gross domestic product (GDP) growth of 2.8 percent is now expected for this year, up from a previous 2.5 percent estimate. Earlier this month the ECB lowered to zero its leading "refi" interest for the eurozone, which is Hungary's main trading partner, and pushed its overnight deposit rate down to -0.4 percent. Hungary is a member of the European Union but not the eurozone.
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