Central bank keeps base rate on hold at 1.35 pc, as expected

Budapest, August 25 (MTI) – Hungarian rate-setters on Tuesday kept the central bank’s key rate on hold at 1.35 percent, as expected.

The decision was widely expected, after the rate-setters clearly signalled an end to an easing cycle at the previous monthly policy meeting. Central bank governor Gyorgy Matolcsy said at the time that the earlier series of 15 basis point cuts carried out for five consecutive months would soon come to an end.

In a statement released after the meeting on Tuesday, the Monetary Council said inflationary pressures were “likely to remain moderate” with the negative output gap expected to close “only gradually” over the policy horizon.

“If the assumptions underlying the bank’s projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy,” the Council said, echoing a statement made after their policy meeting in July.

The Council said a “cautious approach” to monetary policy was warranted because of uncertainty in the global financial environment. But it added that volatility on global financial markets had had “little impact” on domestic financial indicators, citing “calm” financial markets and a stable forint.

The Council acknowledged the contribution of the high external financing capacity of the Hungarian economy and the resulting decline in external debt to the reduction in its vulnerability.

Erste Bank analysts Vivien Barczel and Gergely Urmossy said they expect the central bank to keep the base rate low for a longer period.

Equilor senior analyst Monika Kiss said weak energy prices are keeping inflation expectations low, adding that there are no internal factors which would indicate a future rate increase. She said the forint remained fairly stable amid the recent market turbulence.

Source: http://mtva.hu/hu/hungary-matters