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MNB rate-setters acknowledge risks pointing in direction of looser policy

Interview

At a policy meeting on January 27, The National Bank of Hungary's (MNB) rate-setting Monetary Council acknowledged increased risks pointing in the direction of a lower base rate, but agreed to decide on any possible rate change only after reviewing the central bank's next Inflation Report, the condensed minutes from the meeting published yesterday reveal.

"Members agreed that the risks pointing in the direction of looser monetary policy had increased in the short term; however, a decision to change the monetary policy stance was not warranted, and therefore leaving the base rate unchanged contributed to the Bank’s credibility and predictability," according to the meeting minutes.

"Members agreed that the Council should decide on the possibility of changing the base rate after a comprehensive assessment of the outlook for inflation and the real economy and in view of the March issue of the Inflation Report," the minutes show.

Some members noted that any rate change was not warranted because second-round effects of the external disinflation environment were not yet apparent. Other members added that maintaining the Council's forward guidance in an unchanged form, and cautious communication might help strengthen the central bank's credibility and predictability.

At the meeting in January, the rate-setters voted unanimously on a single proposal to keep the central bank's key rate unchanged at 2.10%.

After a rate-setting meeting in July, the Council said it had wound up an easing cycle started almost two years earlier.

MNB governor György Matolcsy said on the sidelines of a conference early in February that the Council would take a decision on whether or not to keep rates on hold based on the central bank's next Inflation Report.

The Council is scheduled to discuss the final version of the fresh report on March 24.

Speaking at the same conference, MNB managing director for monetary policy Dániel Palotai said that if the big central banks continue their quantitative easing, there will be more room to maneuver for Hungarian monetary policy.

The Council's next rate-setting meeting will take place on February 24.

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