National Bank of Hungary keeps base rate on hold

The National Bank of Hungary‘s Monetary Council decided to keep the central 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 at the end of May 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, introducing EUR/HUF swaps to provide forint liquidity as well as modifying the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates.

The rate-setters left other central bank rates, too. The interest rate corridor stayed unchanged, with the O/N collateralised loan rate at 0.90 percent and the O/N central bank deposit rate at -0.05 percent. The rate of the one-week collateralised central bank credit stayed at 0.90 percent.

In a statement released shortly after the meeting, the council said that the 3 percent inflation target is expected to be reached sustainably from the beginning of 2019, repeating the forecast made in the NBH’s latest Inflation Report released a month earlier. Some degree of unused capacity has remained in the economy, but this is likely to be absorbed gradually as output grows dynamically, the statement said.