MNB's policymakers keep base rate on hold


Image by Jessica Fejos

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 repeated its earlier policy stand.

"The monetary conditions established at the short end support price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner," the policymakers said.

The council also reiterated that it is "key" to keep short-term yields at a "safe distance from a range close to zero" as well as their commitment to "maintaining price stability during the coronavirus pandemic". It also said that it closely monitors "the persistence of inflationary effects" resulting from the economic recovery as well as "possible inflationary effects of financial market developments".

"If warranted by a change in the outlook for inflation, the [MNB] will be ready to use the appropriate instruments," the council added. It also said the MNB will continue to set the rate for its one-week deposit facility at weekly tenders "in response to the increase in risk aversion vis-a-vis emerging markets", which it deems "the greatest risk in terms of the outlook for inflation".

"The bank will maintain the difference between the base rate and the one-week deposit rate as long as warranted by inflationary risks," they added.

The one-week deposit rate has stood at 0.75%, 15 bp over the base rate, since shortly after a monthly policy meeting in September.

The council noted that it took a decision at the monthly policy meeting in January to reallocate liquidity from MNB's collateralized lending facility to its quantitative easing program, stepping up purchase volume and standing ready to expand purchases to securities under ten years. 

In line with that decision, the council said MNB had recently reduced the weekly liquidity provided through the collateralized lending facility from HUF 30 bln to HUF 10 bln, while raising the weekly QE purchases to HUF 60 bln.

Previously, the weekly QE purchases had stood at HUF 50 bln-55 bln.

The council said MNB would continue its practice started in September 2020 of holding tenders for euro liquidity swaps to ease end-of-quarter FX swap market tensions, holding the next tenders at the end of March.

The condensed minutes of the meeting will be published at 2:00 in the afternoon on March 10.

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