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Policymakers cut base rate 15 bp to 0.6%

The Monetary Council of the National Bank of Hungary (MNB) decided to cut the central bank base rate by 15 bp to 0.6% at a monthly policy meeting on Tuesday, according to a report by state news wire MTI.

Photo by Adriana Iacob/Shutterstock.com

The policymakers cut the base rate by 15 bp for the second month in a row after leaving it unchanged for a little more than four years.

MNB deputy governor Barnabás Virág had said days after the June policy meeting that he would propose another 15 bp reduction to the base rate at the next policy meeting, but he added that a rate under 0.6% was "not a possibility".

The council decided 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.

In a statement released after the meeting, the council said the 0.60% rate "supports price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner", while adding that "in the current rapidly changing environment, it is key to maintain short-term yields at a safe distance from a range close to zero".

The council suggested that instruments other than the base rate would be used as additional stimulus, if necessary.

"In the event of a persistent deterioration in the outlook for growth, the Bank will deliver the required additional economic stimulus using its targeted instruments, i.e. the Funding for Growth Scheme Go! and the Bond Funding for Growth Scheme, providing the most direct support to investment," it said.

The council said the MNB will start buying "limited amounts" of government securities with maturities over 15 years "to improve monetary policy transmission", noting that it is of "key importance" that the effect of the base rate cut should affect the longer segment of the yield curve, too. The council said the measure is also intended to "support an extension of the maturity structure of government debt".

MNB started scheduling auctions - on a weekly basis - to buy government securities early in May, but has not held any auctions since May 26.

The council said it continues to consider the government securities purchase program a "safety net, which it intends to use if and to the extent necessary".