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Central bank policy-makers maintain base rate

The Monetary Council of the National Bank of Hungary (MNB) decided once again to keep the central bankʼs key rate on hold at 0.90% at a monthly policy meeting on Tuesday. However, rate-setters have made use of "unconventional, targeted" instruments to ease monetary policy further, state news agency MTI reported.

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. 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 normalization 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 MNB 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 MNBʼs indicator rose to 3.0%, 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% threshold and said it is "likely to rise above 3% in the coming months," but "then stay close to 3% over the monetary policy horizon."

The Council said nearly the same thing after its January policy meeting, MTI noted, although at that time it saw the measure of core inflation excluding indirect tax effects exceeding 3% "in early 2019."

Weakening growth outlook

The rate-setters said sentiment on global financial markets had been "more favorable" since the previous monthly policy meeting, but noted a "weakening outlook" for global growth and particularly growth in the eurozone.

"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 O/N central bank deposit rate and the O/N collateralized loan rate.

After the policy meeting on Tuesday, the O/N deposit rate and the O/N collateralized rate were unchanged at -0.15% and 0.90%, respectively.

The condensed minutes of the monthly meeting will be published at 2 p.m. on March 13.