MNB keeps base rate on hold, as expected

MNB

Photo by Jessica Fejos

The National Bank of Hungaryʼs Monetary Policy Council decided to keep the central bankʼs key rate on hold at 0.90% at a meeting yesterday, as expected, Hungarian news agency MTI reports.

The rate-setters left other central bank rates untouched, too. The interest rate corridor stayed unchanged, with the O/N collateralized loan rate at 0.9% and the O/N central bank deposit rate at -0.05%. The rate of the one-week collateralized central bank credit stayed at 0.9%.

The Monetary Policy Council (MPC) has left the base rate on hold since signalling an end to an easing cycle at a policy meeting at the end of May 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, introducing EUR/HUF swaps to provide forint liquidity as well as modifying the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates.

In a statement released shortly after the meeting, the MPC said that the 3% inflation target is expected to be reached sustainably from the beginning of 2019, repeating the forecast made in the latest Inflation Report of the National Bank of Hungary (MNB), released a month earlier. Some degree of unused capacity has remained in the economy, but this is likely to be absorbed gradually as output grows dynamically, the statement said. 

Otherwise the MPC 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, maintaining the current level of the base rate and loose monetary conditions achieved through the change in monetary policy instruments for an extended period is consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy," the statement reasoned.

In the MPCʼs assessment, the external environment continues to pose a downside risk to inflation, the rate-setters said, and repeated its earlier policy statement that "if inflation remains persistently below the target, the council will stand ready to ease monetary conditions further using unconventional, targeted instruments."

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

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