Policymakers keep base rate unchanged


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 rate-setters said they had performed a revision on the central bank's government securities purchase program.

They acknowledged the success of the quantitative easing program "even during the third wave of the pandemic and in a volatile international financial market environment" and said it had "contributed to maintaining a stable liquidity position in the government securities market and improved the effectiveness of monetary policy transmission".

"The [MNB] will continue to use its government securities purchase program by maintaining a lasting presence in the market, taking a flexible approach to changing the structure of weekly securities purchases, to the extent and for the time necessary," the council said.

The council added that it would not set a total amount for the QE program but would perform the next revision when securities stock reaches HUF 3 tln, while "continuously monitoring" the program's implementation.

The council last performed a revision of the QE program at a policy meeting in November and had said the next revision would be performed when the stock reaches HUF 2 tln.

Total purchases made in the framework of the QE program reached HUF 1.972 tln on April 25, including HUF 1.919 tln of government securities and HUF 53.3 bln of bonds from other issuers with government guarantees, such as the Hungarian Development Bank (MFB) and Magyar Eximbank.

The rate-setters said the increase in risk aversion vis-a-vis emerging markets and potential second-round effects following the economic recovery still pose "the greatest risk" in terms of the outlook for inflation and reiterated their earlier policy stand

"The [MNB] continues to be committed to maintaining price stability even during the third wave of the coronavirus pandemic. It is the [MNB]'s clear intention to prevent the current uncertain environment from causing a sustained rise in inflation. The Council closely monitors developments in investors' risk appetite in emerging markets and potential second-round inflationary effects resulting from the restart of the economy. The Monetary Council reiterates that if warranted by an increase in upside risks to inflation, the [MNB] will be ready to use the appropriate instruments," the policymakers said.

The condensed minutes of the meeting will be published at 2 p.m. on May 12.

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