Hungary may have cut its base rate this week to 6.5 percent, but there are reports that the board that sets these rates is divided on the best strategy. The split is highlighted by a report by the bank that it was revising its projected inflation rate for 2013 up, from 3.5 percent to 5 percent. Interest rates are usually reduced only when inflation appears to be under control, so it seems clear that the discord within the central bank’s ranks centers around the wisdom of cutting rates at a time when inflation appears to be ramping up. The bank’s governor has gone on record saying the rate cut passed by a slim majority, which is hoping that cheaper credit will help spark economic growth. It’s also based on the government’s stated goal of using increased tax revenues and budget cuts to bring the national budget deficit down 1.4 percent to just 2.4 percent of GDP.
