Hungarian policymakers set base rate at the year’s final meeting – update

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.

The National Bank policy makers left the base rate on hold at the previous two meetings, in October and November, 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 expected interest rate paths and future fiscal policies of major economies are still surrounded by uncertainty. Ongoing geopolitical tensions are raising upside risks to inflation through risk aversion towards emerging markets. Looking ahead, a careful and patient approach to monetary policy is warranted. In the Council’s assessment, geopolitical tensions, volatile financial market developments and the risks to the outlook for inflation warrant further pause in cutting interest rates.

“In the current macroeconomic environment, the Bank can make the most effective contribution to the easing of economic agents’ increased precaution and to the restart of economic growth by maintaining price stability and 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 NBH said it considers it crucial that short-term interest rates develop consistently with the level of interest rates determined by the Council in every sub-market and in every period. In line with its earlier practice, the Bank pays special attention to the expected state of the FX swap market at the end of the year. To ensure the effectiveness of monetary policy transmission, the NBH smooths movements in financial markets by using instruments with longer maturities in December, in addition to one-day FX swap tenders announced on a daily basis and weekly discount bill auctions.