Hungarian policy makers leave base rate on hold at 6.50pc

The Monetary Council of the National Bank of Hungary (NBH) decided to leave the central bank base rate unchanged at 6.50pc at a monthly policy meeting on Tuesday.

Unchanged base rate

The policy makers left the base rate on hold at the previous meeting, in October, too.

The Council also left the O/N deposit rate at 5.50pc and the O/N collateralised loan rate at 7.50pc. The rates mark the ends of the central bank’s symmetric interest rate corridor.

In a statement released after the meeting, the Council said the increase in risk aversion towards emerging markets posed an upside risk to domestic inflation, while the interest rate paths of the biggest central banks were still “surrounded by uncertainty” and the external interest rate environment could ease “more slowly than previously expected”.

“In the current macroeconomic environment, the [NBH] can make the most effective contribution to the easing of economic agents’ increased precaution and to the restart of economic growth by preserving price stability and maintaining financial market stability,” the policy makers said.

“Restrictive monetary policy contributes to the maintenance of financial market stability and the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates,” they added.

The Council said decisions on the level of the base rate would be taken in a “cautious and data-driven manner” based on the incoming macroeconomic and financial market data.

At a press conference after the meeting, deputy-governor Barnabás Virág said the Council had kept the base rate on hold in accordance with a “stability-oriented” approach. The current environment continues to require a “disciplined, restrictive and patient” monetary policy, he said. If warranted by the external environment and inflation outlooks, the base rate could remain at the current level for an “extended period”, he added.

He said that the central bank was ready to hold FX swap tenders and discount bill auctions and use long-term instruments to “smooth” financial market movements at the end of the year.

He said foreigners’ short positions had increased, while the stabilising behaviour of the domestic sector had mitigated the weakening of the forint. The Council continues to monitor closely factors behind the weakening of the forint, he added.

Keeping the base rate on hold was the only option discussed at the meeting and it was supported by a “large majority” of Council members, he said.

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