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, but took a number of other measures to ease monetary conditions in light of lower than expected inflation.
The council lowered the O/N central bank deposit rate from -0.05 percent to -0.15 percent, reduced the cap on three-month deposits, its main instrument for sterilising liquidity, to 75 billion forints, and decided to raise the stock of swap instruments. The council left the O/N collateralised loan rate, the top end of the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates, unchanged at 0.90 percent.
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 such “unconventional, targeted” instruments to ease monetary policy further.
In a statement released after the meeting, the council said that the easing measures were warranted by the “repeated delay in the date of meeting the inflation target” and tighter conditions necessary to achieve that target.
The council said that the central bank’s 3.0 percent inflation target is expected to be achieved by the middle of 2019, one quarter later than in a projection released three months earlier.
“Maintaining the base rate and loose monetary conditions for an extended period are necessary to achieve the inflation target in a sustainable manner,” the council said.
“The Monetary Council will continue to monitor closely the risks to inflation and developments in monetary conditions, and will stand ready to ease them further using additional unconventional, targeted instruments,” it added.
The council noted that the external environment continues to pose a downside risk to inflation.