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Policymakers cut base rate by 15 bp to 0.75%

The Monetary Council of the National Bank of Hungary (MNB) decided to cut the central bank base rate by 15 bp to 0.75% at a monthly policy meeting on Tuesday, according to a report by state news wire MTI.

Photo by Adriana Iacob/Shutterstock.com

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.

The base rate had been at 0.9% from a little more than four years.

The forint traded at 350.61 to the euro about 20 minutes after the decision was announced, softening from 348.72 before.

At a press conference after the meeting, deputy-governor Barnabás Virág said the base rate cut was a "symbolic" step, a "discrete decision", and not a decision on the start of a cycle.

In a statement released after the meeting, the council referred to the rate cut as a "fine-tuning measure" that "supports the maintenance of price stability and the recovery of economic growth".

It noted that the outlook for inflation has "shifted downwards persistently" due to strong disinflationary effects, while the countryʼs economic performance in 2020 is "likely to be more subdued than earlier expected".

The council said "a similar shift...as in the base rate" is "warranted" for the one-week deposit rate, which the MNB sets at weekly tenders.

"In the council’s view, the current set of instruments provides appropriate room for maneuver to respond to emerging challenges in a targeted and flexible manner," the council noted.

The council said it "continues to consider" a government securities purchase program launched among measures responding to the coronavirus crisis "as a safety net, which it intends to use in case of necessary and to the extent necessary".

MNB started holding auctions - on a weekly basis - to buy government securities early in May, but has not held any for four weeks in a row.

The council noted that it "continuously assesses incoming data and changes in the outlook for inflation", adding that the MNB "will use every instrument at its disposal to achieve price stability and to support the Hungarian economic and financial system".

The condensed minutes of the policy meeting will be published at 2 p.m. in the afternoon of July 8.