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MNB leaves base rate, O/N depo rate unchanged

The Monetary Council of the National Bank of Hungary (MNB) left both the central bank base rate and overnight deposit rate unchanged at 0.90% and -0.05%, respectively, at a monthly policy meeting on Tuesday, state news agency MTI reported.

At the previous policy meeting in late March, the Council raised the O/N deposit rate by 10 basis points, marking the first policy tightening in years. Rate-setters also decided to reduce a targeted squeeze-out of liquidity from central bank instruments by HUF 100 billion to HUF 300-500 bln. Since the crowd-out target was cut, the stock of the central bankʼs FX swaps has fallen by some HUF 178 bln.

In a statement released after the meeting, the Council reiterated guidance issued after the monthly policy meeting in March.

The Council said inflation "will fluctuate around" the 3% central bank target in the coming quarters, while the measure of core inflation excluding indirect tax effects - a bellwether indicator of underlying inflation, MTI noted - is "expected to continue to rise until the autumn months and then to decline from the end of 2019."

The Council noted that "persistently buoyant" domestic demand is boosting the pace of price increases, while weakening external activity is restraining that pace, and said it would assess the effects of this "dichotomy" on the maintenance of price stability over the 5-8 quarter horizon of monetary policy.

"The monetary policy stance will continue to be accommodative, economic agentsʼ financing costs will remain favourable," the Council said, adding that it applies a "cautious approach" to policy decisions and relies "mainly" on the macroeconomic and inflation projections in the MNBʼs quarterly Inflation Report.

The condensed minutes of the meeting on Tuesday will be published at 2 p.m. on May 15, MTI noted.