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, state news wire MTI reports.

Photo by Adriana Iacob/

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 bankʼs "interest rate corridor". The base rate is paid on mandatory reserves and preferential deposits.

Next QE program technical revision set at HUF 2 tln mark

In a statement released after the meeting, the council said it had performed a "technical revision" of its quantitative easing program, pointing out that the stock of government securities on the MNBʼs balance sheet had risen by more than HUF 700 bln since May 2020.

The council noted that is has proceeded with the program without setting a total amount and said the next technical revision will be performed when the stock reaches HUF 2 trillion.

MNB will use the QE program "to the extent and to the time necessary", the council said, adding that its implementation will be "continuously monitored".

The latest central bank data show the purchases of government securities made in the QE program stand close to HUF 724 bln. An additional HUF 29 bln of bonds from other issuers with government guarantees have also been purchased.

FGS GO! allocation raised by HUF 1 tln

The council decided to add another HUF 1 tln to the original HUF 1.5 tln allocation for the Funding for Growth Scheme Go!, noting that utilization of the program exceeded HUF 1 tln by mid-November.

FGS Go! "plays a key role in mitigating the adverse economic effects of coronavirus", the council said, adding that 15,000 companies have availed of the programʼs cheap credit since its launch in April.

Under the scheme, which is an extension of the Funding for Growth Scheme launched in 2013, MNB is providing lenders with 0% financing for microbusiness and SME loans with fixed rates capped at 2.5%. FGS Go! credit is being made available to a broader range of businesses than in the earlier scheme, and program conditions have been eased.

Room to expand balance sheet

The council acknowledged that MNB had "significantly" expanded its balance sheet in response to the economic impact of the coronavirus crisis, thus supporting the recovery.

"The [MNB] will be ready to expand its balance sheet further to manage risks arising from the coronavirus pandemic and to foster the quick recovery of sustainable economic growth," the council said.

In spite of the expansion this year, MNBʼs balance sheet "can still be considered of average size in regional comparison", they added.

MNBʼs total assets stood at HUF 15.172 tln at the end of June, up from HUF 12.348 tln at the end of 2019.

Council reiterates policy position

The council said "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", reiterating its stand at the previous monthly policy meeting.

It also repeated that it is "key" to keep short-term yields at a "safe distance from a range close to zero" as well as its commitment to "maintaining price stability during the coronavirus pandemic".

The council said 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 policymakers said.

The council 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".

"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 condensed minutes of the meeting on Tuesday will be published at 2 p.m. in the afternoon on December 2.

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