Deputy Governor: MNB to cut rate to a sustainable level


The National Bank of Hungary (MNB) will cut its base rate until it reaches a rate that is consistent with its inflation target; the bank would like to keep the key rate low for a sustained period, MNB Deputy Governor Márton Nagy told journalists today, according to Hungarian news agency MTI.

The MNBʼs inflation target is 3% in a +/-1 percentage-point tolerance band. 

Nagy spoke after the MNB cut the key rate by 15 bp to 1.2% in a surprise move yesterday. The MNB halted its previous easing cycle in July 2015. It also narrowed and lowered its interest rate corridor, cutting the central bank O/N deposit rate to -0.05% and its O/N collateralized loan rate to 1.45%, all to take effect on March 23. 

Nagy said the Bank wanted to surprise markets by launching a new easing cycle, MTI reported. A second cut will surely come, the question is whether a third or fourth will follow, and he personally preferred 15 bp reductions, Dow Jones cited him as saying. 

Nagy said the CPI forecast in the new quarterly Inflation Report, under which inflation will reach the +/-1 percentage-point 3% inflation target only in H1 2018, leaves ample room for further easing. 

In a move likely connected to yesterdayʼs rate changes, Nagy announced that the MNB wants to make the BUBOR market active to aid monetary policy transmission, noting that the BUBOR at present does not live up to its role of a reference rate. 

The central bank agreed with the 12 biggest banks to make a market in one-month and three-month interbank reference rate BUBOR from May 1, Nagy said, adding that the MNB will review the developments by the fall.

The central bank could not rule out a further reduction in the O/N deposit rate, adding, however, that too negative rates were not efficient, Reuters reported. 

The moves already announced will be supplemented by charging banks 0.05% on excess reserves from April 7, Dow Jones reported.  

The Monetary Council has also decided that the central bankʼs one-week lending rate would be set at 15 basis points above the base rate, which currently stands at 1.2%. Previously the one-week repo was 25 basis points above the 1.35% base rate. 

The moves are in line with the MNBʼs goal of encouraging banks to channel their excess liquidity into purchasing more government bonds.

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