Budapest, March 22 (MTI) – The National Bank of Hungary lowered the central bank’s key rate by 15 basis points to 1.20 percent at a policy meeting on Tuesday, making a cut for the first time since last summer.
The rate-setting Monetary Council had kept the base rate on hold since signalling an end to an easing cycle at a policy meeting in July 2015.
However, after the rate-setters’ policy meeting in February, they said monetary conditions could be eased further in view of the central bank’s fresh quarterly Inflation Report. The Council also noted that members “closely examined” foreign monetary policy developments, “particularly the measures of the European Central Bank” at the meeting.
The ECB cut its main interest rate by 5 basis points to 0 percent earlier in March.
“Interest rate cuts will continue as long as monetary conditions become consistent with the sustainable achievement of the inflation target,” the Council said in a statement after the meeting.
The move, which surprised analysts who had thought the central bank would stick to unconventional easing measures at the meeting, effectively lowered the rate on the central bank’s O/N deposits to -0.05pc.
The Monetary Council also decided to shift the top of the overnight interest rate corridor — a symmetric band around the base rate that prevents extreme fluctuations of interbank rates — downward by 50 basis points from 75 to 25 basis points over the base rate. The bottom of the corridor, or the overnight rate for central bank deposits, will remain at 125 basis points under the base rate. Calculating with the central bank’s key rate — 1.20 percent for the three-month deposit — the overnight collateralised loan rate stands at 1.45 percent and the overnight central bank deposit rate at -0.05 percent.