Central Bank Policymakers Leave Base Rate on Hold


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The Monetary Council of the National Bank of Hungary (MNB) left the central bank's base rate on hold at 13% at a monthly policy meeting on Tuesday, according to a report by state news wire MTI.

The council also decided on Tuesday to keep the central bank's O/N deposit rate at 12.5% and the O/N collateralized loan rate at 25%.

The O/N deposit rate and the collateralized loan rate mark the bottom and the top, respectively, of the central bank's "interest rate corridor". The base rate is paid on mandatory reserves.

The rate-setters had signaled an end to the tightening cycle at their monthly policy meeting in September, but said tight monetary conditions would be maintained with a focus on sterilizing liquidity and improving monetary policy transmission. 

On October 14, the policymakers announced a decision to launch O/N deposit tenders on a daily basis. The central bank has offered the liquidity sterilization instrument at a rate of 18%.

The policymakers also voiced the central bank's commitment to cover FX liquidity needs for energy import payments until the end of the year.

New Instruments to Remain 'As Long as Warranted'

In a statement released after the meeting, the council said MNB will continue to use the instruments introduced in mid-October "as long as it is warranted by the maintenance of market stability and developments in risk perceptions".

"Tight monetary conditions will be maintained over a prolonged period, which will ensure that inflation expectations are anchored and the inflation target is achieved in a sustainable manner," the council added.

Addressing MNB's commitment to directly meet FX liquidity needed to pay for energy imports, the council noted that a decline in domestic energy consumption in recent months along with a fall in energy prices allows the balance to be maintained on FX markets "by providing less foreign currency liquidity than earlier expected".

"The [MNB] continues to take into account considerations regarding the adequacy of foreign currency reserves," they added.

External, Internal Factors Suggest Inflation Turnaround Near

At a press conference after the meeting, MNB deputy governor Barnabás Virág said the Monetary Council had decided on Tuesday on the "formal framework" for meeting the FX liquidity needs for energy imports.

He added that the current account, which has run a deficit for months, mainly because of higher energy prices, "bottomed out" in September and would improve "more quickly than expected".

Addressing inflation, Virág said a turnaround in fundamental consumer price trends is "taking shape", adding that an increase in headline CPI in October could be driven by volatile food prices.

He noted that gas prices on European markets had "fallen significantly" from summer peaks.

Virág pointed to a "clear slowdown" in domestic demand indicated by consumer spending data and a more than 10pc reduction in electricity consumption in recent weeks. Less supply chain friction globally, and declining international freight costs also suggest an approaching turnaround in inflation, he added.

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