MNB policy-makers hold base rate, as expected

Interview

Jessica Fejos

The Monetary Council of the National Bank of Hungary (MNB) decided to keep the central bankʼs key rate on hold at 0.90% at a meeting on Tuesday, as expected, according to a summary by state news agency MTI.

The Council has left the base rate on hold since signalling an end to an easing cycle at a policy meeting in spring 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 bankʼs main instrument for sterilizing liquidity, as well as modifying the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates.

At the meeting on Tuesday, the Council left the interest rate corridor unchanged, with the O/N collateralized loan rate at 0.90% and the O/N central bank deposit rate at -0.05%.

In a statement released shortly after the meeting, the Council repeated its earlier stand on keeping the base rate on hold "for an extended period," while staying prepared to ease monetary conditions with unconventional instruments.

"If the assumptions underlying the [MNB]’s projections hold, it is the maintenance for an extended period of the current level of the base rate and the loose monetary conditions achieved through the change in monetary policy instruments earlier which is consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy," according to the statement.

"The Council will stand ready to ease monetary conditions further using unconventional, targeted instruments to ensure the monetary conditions necessary to meet the inflation target in a sustainable manner," the rate-setters added.

The Council said the external environment continues to pose a downside risk to inflation, but added that a "watchful approach" to monetary policy is justified because of uncertainty in the global financial environment.

The condensed minutes of the meeting will be published at 2 p.m. on September 6.

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