Hungarian national bank’s latest decision strengthens the forint

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

At the previous policy meeting, in September, the Council had cut the rate by 25bp. 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 domestic inflation outlook was consistent with the projection in the NBH’s latest quarterly Inflation Report, published in September, but pointed to an increase in upside risks to inflation on the back of deteriorating international investor sentiment and volatile commodity prices.

“Re-intensifying geopolitical tensions, volatile financial market developments and the risks to the outlook for inflation warrant a pause in cutting interest rates,” the policy makers said. “The external interest rate environment may ease more slowly than previously expected, while the expected interest rate paths of the world’s leading central banks are still surrounded by uncertainty,” they added. Looking ahead, the Council said a “careful and patient approach” to monetary policy was still warranted and decisions on the base rate would be taken in a “cautious and data-driven manner”.

Forint strengthens after the decision

The decision of the Monetary Council did not come as a surprise: after the words of Barnabás Virág, Vice President in charge of Monetary Policy, it was certain that interest rates would be kept on hold, Portfolio writes. Nevertheless, the forint reacted to the announcement by strengthening to around 400/EUR.

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