National Bank of Hungary policy makers keep 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 monthly policy meeting on Tuesday.

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. After recent policy meetings, the Council has said it is “prepared for the gradual and cautious normalisation of monetary policy”.

In a statement released after the meeting, the Council reiterated its earlier stand and offered little new information on the possible timing of a policy shift.

“The Monetary Council is prepared for the gradual and cautious normalisation of monetary policy, which will begin depending on persistent inflationary developments,” the rate-setters said.

“Core inflation excluding indirect tax effects is likely to continue to rise in the coming quarters, which the Council will assess in terms of the sustainable achievement of the inflation target,” the Council added.

The NBH releases its measure of core inflation excluding indirect tax effects — a gauge that captures “persistent inflationary trends” — every month, shortly after the Central Statistical Office (KSH) releases headline and core inflation data.

In January, the indicator rose to 3.0 percent, reaching the mark for the first time since February 2012.

In its statement on Tuesday, the Council acknowledged the indicator had reached the 3.0 percent threshold and said it is “likely to rise above 3 percent in the coming months” but “then stay close to 3 percent over the monetary policy horizon”.

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The Council said nearly the same thing after the January policy meeting, although then it saw the measure of core inflation excluding indirect tax effects rising over 3 percent “in early 2019”.

The rate-setters said sentiment on global financial markets had been “more favourable” since the previous monthly policy meeting, but noted a “weakening outlook” for global growth and particularly growth in the euro zone.

“The international environment continues to suggest a more cautious approach, as the sustained deterioration in global activity may pose a downside risk to the external inflationary environment,” the Council said, adding that it “assesses these developments in light of their relevance to persistent domestic inflationary trends”.

The Council reiterated its earlier adopted strategy of adjusting monetary conditions using an “optimal combination” of forint swaps and the interest rate corridor which lies between the overnight central bank deposit rate and the overnight collateralised loan rate.

After the policy meeting on Tuesday, the overnight deposit rate and the overnight collateralised rate were unchanged at -0.15 percent and 0.90 percent, respectively.

As we wrote yesterday, the Hungarian parliament’s economic committee approved the renomination of György Matolcsy to head the National Bank of Hungary (NBH) for a second term, read more HERE.

Source: MTI