Budapest, April 16 (MTI) – The room for further cuts to the central bank’s key rate is increasingly limited, the managing director of the National Bank of Hungary said on Saturday.
Over the past years, the central bank’s rate cuts have proven sustainable, allowing the bank to slowly reduce the base rate by a total of 580 basis points from 7 percent to 1.20 percent, Barnabás Virág said.
In reference to Hungary’s debt crisis of 2008-09, Virág said the rate cuts have also reduced the interest burden on the country’s debt. As a result, interest expenditures have decreased by 300 billion forints (EUR 962.2m) over the past two years.
Virag noted that after the financial crisis struck in 2008 the central bank’s primary objective was to stimulate growth and maintain price stability.
For the past couple of years, Hungary’s inflation rate has been around the zero mark but current projections indicate it could be back near the central bank’s 3 percent target by 2018, he said.
Earlier this week the economy minister submitted the government’s draft budget for 2017 to the Fiscal Council. Its key components include a lower, 5 percent VAT on pork, milk, eggs, and poultry. Mihály Varga said the VAT on catering services would be lowered to 18 percent next year and then to 5 percent in 2018, while the government is also planning to reduce the VAT on internet services.