MNB policymakers keep base rate on hold 


Photo by Adriana Iacob/

The Monetary Council of the National Bank of Hungary (MNB) decided to leave the central bank base rate unchanged, at 0.60%, at a monthly policy meeting on Tuesday, according to a report by state news wire MTI.

The council also decided on Tuesday to leave the O/N deposit rate at -0.05% and the O/N and one-week collateralized loan rates at 1.85%.

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 and preferential deposits.

In a statement released after the meeting, the Council pointed to an increase in upside risks to the inflation outlook and said policymakers are prepared to proactively tighten policy.

"In the Monetary Council's assessment, risks to the outlook for inflation have recently continued to strengthen even further...The Monetary Council reiterates that they are ready to tighten monetary conditions in a proactive manner to the extent necessary in order to ensure price stability and to mitigate inflation risks," the rate-setters said.

The council reaffirmed its commitment to maintaining price stability and said it is the MNB's "clear intention to prevent the current uncertain environment from causing a sustained rise in inflation". The council added that the projection in MNB's next Inflation Report, to be discussed at a policy meeting in June, "will be key in assessing the outlook for inflation and developments related to the economic recovery".

It acknowledged the impact on inflation of a "sustained rise" in commodity prices and international freight costs, temporary demand-supply frictions due to the rapid economic recovery, tightening of labor market capacities in some sectors, and "dynamic" wage growth.

MNB deputy governor Barnabás Virág told journalists a little more than a week earlier that the Monetary Council could weigh a rise in the base rate at a monthly policy meeting in June. 

"We must not underestimate the risks of a sustained rise in inflation, and we will react to inflation risks proactively," he said.

The policymakers have kept the base rate on hold at 0.60% since last summer, but April inflation reached 5.1%, well outside of the +/- one-percentage-point tolerance band around the central bank's 3% mid-term target.

QE program 'remains crucial'

The council noted the success of the MNB's quantitative easing program amid the third wave of the pandemic and a "volatile" international financial market environment. The central bank's bond purchases "have contributed to maintaining a stable liquidity position in the government securities market and improved the effectiveness of monetary policy transmission", they said, adding that the QE program "remains crucial".

"An increase in global reflation concerns could lead to heightened uncertainty in the government securities market again; therefore, the [MNB] will continue to use the program by maintaining a lasting presence in the market, taking a flexible approach to changing the quantity and structure of weekly securities purchases, to the extent and for the time necessary," the council said.

Assets purchased in the framework of the program now stand over HUF 2.228 trillion. No limit has been set for the scheme, but policymakers will perform a revision when stocks reach HUF 3 tln.

The Council said MNB would continue its practice of holding euro liquidity swap tenders to ease end-of-quarter swap market tensions late in June.

"Through an active market presence, the MNB cushions the spillover of tensions in international swap markets to the domestic market, thereby contributing to preserving the stability of monetary conditions and through this to maintaining price stability," they added.


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