Policymakers keep base rate, O/N deposit rate on hold


Photo by Adriana Iacob/

The Monetary Council of the National Bank of Hungary (MNB) decided to keep the central bank base rate at 0.9% and the O/N deposit rate at -0.05% at a monthly policy meeting, state news wire MTI reports.

Photo by Adriana Iacob/

The Council has left the rates unchanged since a policy meeting last March; however, they have tweaked monetary policy on a quarterly basis - coinciding with the publication of the central bankʼs Inflation Report - by adjusting the amount of liquidity to be crowded out from central bank instruments that pay the base rate.

MNB will publish its latest Inflation Report on Thursday, but it released the main forecasts from the report on Tuesday. The bank lowered the forecast for 2020 inflation to 2.6%-2.8% from 3.5% in the previous Inflation Report released in December.

MNB  explained that the forecast is a range because it is based on two equally weighted scenarios rather than a preferential baseline scenario due to the uncertain economic prospects resulting from the coronavirus pandemic.

The central bank sees inflation climbing back to 3.4%-3.5% in 2021. Hungaryʼs CPI was 4.4% in February.

The Council noted that the pandemic has resulted in a "rapid decline" in expected inflation and said the baseline project is surrounded by "even significantly higher uncertainty than usual".

Inflation is expected to return to the +/- one-percentage-point tolerance band around the 3% mid-term target "as early as March", then fall to the target "in a few months", MNB said.

The pandemic "is more likely to bring about alternative risk scenarios resulting in inflation below the baseline projection and more subdued growth", it added.

Core inflation excluding indirect tax effects - a bellwether indicator of underlying inflation - "is likely to be around 3.2%-3.5% on average in 2020, before decreasing gradually to 3%", MNB said.

2020 GDP growth forecast 2-3%

MNB put GDP growth this year at 2%-3%, down from 3.7% in the previous report. It sees growth snapping back to 4%-4.8% in 2021, lifted by the low base and a rebound.

"This year’s macroeconomic data are expected to show significant volatility and dichotomy. In the first half of 2020, growth is likely to slow significantly, reflecting the negative economic effects of the pandemic; then domestic growth, the labour market, lending and foreign trade are expected to pick up again as the negative effects wane and lost economic activity is regained," the central bank said.

Council to take policy decisions "when necessary"

Asked whether the Council would continue its practice of adjusting monetary policy on a quarterly basis, with the publication of the Inflation Report, MNB deputy governor Márton Nagy said the Council would take its policy decisions "when necessary", speaking at an online press conference after the meeting.

Nagy said about 80% of Hungarian retail borrowers were expected to avail of a government-ordered moratorium on payments of principal, interest and fees on loans.

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