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Reuters: Exclusive-Hungary central bank could cut base rate to 10-11% by year-end -rate-setter

Article pubished: September 14, 2023

IB Economics Syllabus: Macroeconomics (Expansionary Monetary Policy, Inflation, Exchange Rate)

Hungary’s Central Bank has anounced a potential base rate cut to 10-11% by year’s end. The reason for this move is the European Union’s very high inflation rates, leading the National Bank of Hungary to adjust its one-day deposit rate to 14%. As inflation starts to slow down, more rate changes are being considered. Gyula Pleschinger, a key policy maker, suggests a potential alignment of this deposit rate with the 13% base rate, a strategy aimed at strengthening the Hungarian forint.

IB Economics (IA) Commentary Suggestions:

With this article, you can analyze the world of monetary policies and understand their role in shaping a nation’s economic direction. By examining the relationship between interest rates and inflation, you can present how central banks aim to maintain a balance using an AD/AS diagram showing the potential effects of lower interest rates on aggregate demand and consequently, the average price level. Your analysis could also involve an exchange rate diagram highlighting how the rate cut might affect the value of the Hungarian forint in the global market (note that this is part of the Global Economics section though – so perhaps it’s better for that IA). Throughout your exploration, the key concept is interdependence and intervention.

Source of image: Szilárd Koszticsák/MTI

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