Hungary cuts key interest rate to 6.75 percent

AP News
Posted: Aug 28, 2012 8:55 AM

BUDAPEST, Hungary (AP) — Hungary's central bank says it is cutting its main interest rate from 7 percent to 6.75 percent, confounding analysts' expectations of no changes until later in the year.

Tuesday's decision takes effect on Wednesday. The change is the first time the National Bank of Hungary has adjusted its base rate since Dec. 21, when it raised it by half a percentage point.

The move immediately weakened the forint, Hungary's currency — the euro bought over 281 forints compared with 279 earlier in the day. The rate cut could help boost economic growth by lowering borrowing costs for businesses and consumers, but could also further weaken the forint and lift the already-high inflation rate.

In the second quarter of 2012, Hungary's economy contracted by 1.2 percent on an annual basis.