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MNB leaves base rate, ups GDP growth forecast

MNB

Jessica Fejos

The Monetary Council of the National Bank of Hungary (MNB) decided to keep its key rate on hold at 0.90% at its monthly policy meeting Tuesday. At the same time, the central bank raised its projection for GDP growth to 3.9% this year, and dropped its inflation forecast by 0.1 of a percentage point, state news wire 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. However, rate-setters have made use of "unconventional, targeted" instruments to ease monetary policy further.

The Council left the O/N central bank deposit rate at -0.15% and the O/N collateralized loan rate at 0.90% on Tuesday.

In a statement released after the meeting, the Council said that a flattened yield curve, as well as an unchanged base rate, would be necessary to meet the central bankʼs 3.0% mid-term inflation target.

"In the Councilʼs assessment, maintaining the base rate and the loose monetary conditions at both short and long ends for an extended period is necessary to achieve the inflation target in a sustainable manner," the policy-makers said.

The Council reiterated that the central bankʼs 3.0% mid-term inflation target "is expected to be achieved in a sustainable manner by the middle of 2019."

"The Council will closely monitor developments in monetary conditions and will ensure the persistence of loose monetary conditions over a prolonged period by using the extended set of monetary policy instruments," it added.

The Council also noted that it had decided at the previous monthly policy meeting on the introduction, from January, of unconditional interest rate swap facilities and a mortgage bond purchase program that aim to flatten the yield curve, reported MTI.

MNB lowers inflation projection

Also on Tuesday, the MNB lowered its annual average inflation projection for this year from 2.4% to 2.3% in a quarterly forecast.

Hungaryʼs CPI was 2.4% in January-November, the latest data from the Central Statistical Office (KSH) show. The MNB left its projections for inflation in 2018 and 2019 unchanged at 2.5% and 2.9%, respectively, in the fresh Inflation Report.

At the same time, the central bank raised its projections for this yearʼs GDP growth from 3.6% to 3.9%, and from 3.7% to 3.9% for next year. The MNB left its projection for 2019 unchanged at 3.2%, and now augurs 2.7% growth for 2020.

Hungaryʼs GDP grew an unadjusted 3.8% in Q1-Q3 2017, the latest data show, but the MNB said it assumes routine revisions will add 0.1 of a percentage point to that figure.

The central bank will publish its Inflation Report in full on Thursday.

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