MNB policymakers keep base rate on hold

Analysis

The Monetary Council of the National Bank of Hungary (MNB) decided to keep the central bankʼs key rate on hold at 0.9% at a monthly policy meeting Tuesday. The council also left the overnight central bank deposit rate at -0.15% and the O/N collateralized loan rate at 0.9%.

In a statement released after the meeting, the council said that "maintaining the base rate and the loose monetary conditions at both the short and long ends for an extended period is necessary to achieve the inflation target in a sustainable manner," echoing the policy stand voiced in previous months.

"The council will closely monitor developments in monetary conditions and will ensure the persistence of loose monetary conditions over a prolonged period by using the extended set of monetary policy instruments," the statement added.

Commenting on the newest of these policy instruments intended to flatten the yield curve, the council said the MNB would continue mortgage bond purchases and its monetary interest rate swap (MIRS) facility programs "continuously and for a prolonged period," calling them "an integral part of the set of monetary policy instruments."

The MNB noted that it had bought mortgage bonds with a nominal value of some HUF 150 billion by the middle of April. Transactions on the primary market accounted for more than one-third of total purchases, it added. As a result of the purchases, the spreads of mortgage bonds over government securities yields "fell sharply and turned negative on average."

The council has now left the base rate on hold since signalling an end to an easing cycle at a policy meeting in the spring of 2016. However, the rate-setters have made use of "unconventional, targeted" instruments to ease monetary policy further.

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