After 4 years, Hungary’s central bank cuts base rate to 0.75 pc

Hungary’s central bank (NBH) rate-setters cut the base rate by 15 basis points to 0.75 percent at a regular meeting on Tuesday.

The base rate had been set at 0.90 percent since May 25, 2016.

The bank’s Monetary Council decided to leave the O/N deposit rate at -0.05 percent and the O/N and one-week collateralised loan rates at 1.85 percent.

The O/N deposit rate and the collateralised loan rate mark the bottom and the top, respectively, of the central bank‘s “interest rate corridor”. The base rate is paid on mandatory reserves and preferential deposits.

The forint traded at 350.61 to the euro about 20 minutes after the decision was announced, softening from 348.72 before.

In a statement released after the meeting, the Council referred to the rate cut as a “fine-tuning measure” that “supports the maintenance of price stability and the recovery of economic growth”.

• Khalaf Ahmad Al Habtoor: Hungary, Europe’s rising star

It noted that the outlook for inflation has “shifted downwards persistently” due to strong disinflationary effects, while the country’s economic performance in 2020 is “likely to be more subdued than earlier expected”.

The Council said a “a similar shift … as in the base rate” is “warranted” for the one-week deposit rate, which the central bank sets at weekly tenders.

The Council suggested its tool chest would not be expanded.

“In the Council’s view, the current set of instruments provides appropriate room for manoeuvre to respond to emerging challenges in a targeted and flexible manner,” it said.

The Council said it “continues to consider” a government securities purchase programme launched among measures responding to the coronavirus crisis “as a safety net, which it intends to use in case necessary and to the extent necessary”.

The NBH started holding auctions — on a weekly basis — to buy government securities early in May, but has not held any for four weeks in a row.