MNB maintains base rate, hints at possible changes

MNB

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The Monetary Council of the National Bank of Hungary (MNB) decided once again to keep the central bankʼs key rate on hold at 0.90% at its monthly policy meeting on Tuesday, according to national news agency MTI.

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

The Council also left the O/N central bank deposit rate at -0.15% and the O/N collateralized loan rate at 0.90% at the meeting on Tuesday. The two rates demarcate the central bankʼs interest rate corridor.

In a statement released after the meeting, the Council said it is "prepared for the gradual and cautious normalization of monetary policy, which will begin with the modification of unconventional instruments," suggesting such unconventional instruments would be adjusted before any change to the base rate is made.

However, notably absent from the statement was any remark on maintaining the current level of the base rate, as in statements released after policy meetings in previous months. 

The Council said core inflation excluding indirect tax effects is likely to continue to rise in the coming quarters, which will be assessed in terms of the sustainable achievement of the inflation target.

"The Monetary Council closely monitors incoming macroeconomic data and will decide to adjust monetary conditions depending on their outcome," the statement added.

The Council reiterated plans, announced already in September, to cease mortgage bond purchases and phase out monetary policy interest rate swaps (MIRS) by the end of 2018, relying on an "optimal combination" of forint swaps and the interest rate corridor to adjust monetary conditions.

The Council also reiterated that it will launch a HUF 1 trillion program in January 2019, dubbed Funding for Growth Scheme Fix (FGS Fix), to raise the proportion of long-term, fixed-rate lending to SMEs.

The Council decided on Tuesday to leave the average amount of liquidity to be crowded out in the first quarter of 2019 unchanged "at least at HUF 400-600 bln." The Council will next decide on the amount to be crowded out in March 2019.

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