Hungary’s central bank keeps base rate at 1.35%

MNB

Image by Jessica Fejos

As the market and analysts expected, the Monetary Policy Council (MPC) of the National Bank of Hungary (MNB) decided to keep the bank’s key rate on hold at 1.35% at a rate-setting policy meeting today, according to reports.

The Council has kept the base rate on hold since signaling an end to an easing cycle at a policy meeting in July, Hungarian news agency MTI noted.

The council suggested it could use "unconventional, targeted monetary policy instruments" to loosen monetary conditions further, MTI said.

"Under current conditions, the Monetary Council wishes to achieve the inflation target in a sustainable way by holding the base rate unchanged for an extended period and by using unconventional, targeted monetary policy instruments, as these contribute efficiently to the further loosening in monetary conditions, particularly to the decline in long-term yields. The Council examines thoroughly the range of potentially applicable tools," MTI cited the statement.

"If the assumptions underlying the [central] bankʼs projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period, over the entire forecast horizon, are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy," the Council reportedly said.

Takarékbank analyst Gergely Suppan told the news agency that monetary easing by the European Central Bank, lower external risks, the MNBʼs self-financing program, and the expected upgrade of Hungaryʼs credit rating all support leaving the base rate unchanged for an extended period of time. Suppan reportedly added the base rate could rise to 2% by the end of 2017.

Erste analysts Vivien Barczel and Gergely Űrmössy told MTI they believe the central bank will leave the base rate unchanged at least until the end of the first quarter of 2017. If economic growth significantly slows in Q4 2015 then an alternative scenario could happen where the MNB further lowers the base rate in the second quarter of 2016, they said.

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