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National Bank of Hungary keeps base rate on hold

Analysis

Jessica Fejos

The Monetary Council of the National Bank of Hungary (MNB) yesterday kept the central bank’s key rate on hold at 0.90% as expected, and also left the interest rate corridor unchanged, with the overnight collateralized loan rate at 0.90% and the O/N central bank deposit rate at -0.05%, according to Hungarian news agency MTI.

The Monetary Council has left the base rate on hold since signaling an end to an easing cycle at a policy meeting in May 2016. However, rate-setters have made use of “unconventional, targeted” instruments to ease monetary policy further, such as placing a limit on the central bank’s main instrument for sterilizing liquidity, as well as modifying the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates.

In a statement released shortly after the meeting, the council repeated its earlier stand on keeping the base rate on hold “for an extended period,” while staying prepared to ease monetary conditions with unconventional instruments.

“If the assumptions underlying the [MNBʼs] projections hold, maintaining the current level of the base rate for an extended period and the loosening of monetary conditions by the change in monetary policy instruments are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy... If subsequently warranted by the achievement of the inflation target, the council will stand ready to ease monetary conditions further using unconventional, targeted instruments,” the statement said.

The council noted that inflation is “rising gradually to the target” and that the disinflationary impact of the real economy is “gradually dissipating” over the policy horizon.

The condensed minutes of the meeting will be published at 2 p.m. on February 8.

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