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Hungary’s central bank keeps base rate on hold

Hungary’s central bank keeps base rate on hold

The Hungarian central bank‘s Monetary Council decided to keep the bank’s key rate on hold at 0.90 percent at a meeting on Tuesday, as expected.

The council has left the base rate on hold since signalling an end to an easing cycle at a policy meeting in the spring of 2016. However, the rate-setters have made use of “unconventional, targeted” instruments to ease monetary policy further, such as placing a limit on the central bank’s main instrument for sterilising liquidity as well as modifying the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates.

At the meeting on Tuesday, the council left the interest rate corridor unchanged, with the O/N collateralised loan rate at 0.90 percent and the O/N central bank deposit rate at -0.05 percent.

In a statement released shortly after the meeting, the council repeated its earlier stand on keeping the base rate on hold “for an extended period”, while staying prepared to ease monetary conditions with unconventional instruments.

“If the assumptions underlying the [NBH]’s projections hold, it is the maintenance for an extended period of the current level of the base rate and the loose monetary conditions achieved through the change in monetary policy instruments earlier, which is consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy,” according to the statement.

“The Council will stand ready to ease monetary conditions further using unconventional, targeted instruments to ensure the monetary conditions necessary to meet the inflation target in a sustainable manner,” the rate-setters added.

Gergely Urmossy of Erste Bank said the chances for the Monetary Council to raise the base rate until the end of 2019 were “negligible”.

Takarékbank’s Gergely Suppán voiced a similar opinion and suggested that a “slow, gradual increase” in the base rate was not expected before the end of 2019. He welcomed that the base rate has been on a “stable and predictable path” for a long time.

Hungary’s cash flow-based budget deficit, excluding local councils, reached 816.8 billion forints (EUR 2.69bn) by the end of July, the economy ministry said in a second reading of data yesterday.

Photo: Daily News Hungary

Source: MTI

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