MNB cuts base lending rate to 0.9%, calls end to easing


Photo by Jessica Fejos

The Monetary Policy Council of the National Bank of Hungary (MNB) today announced a 15 bps cut in the base lending rate, to 0.90%, a reduction that analysts had predicted. The Council said this cut marked the end of the current easing cycle.

"Based on available information, the inflation outlook and the cyclical position of the real economy point to maintaining the 0.9% base rate for an extended period," the Council said in a statement after the meeting, Hungarian news agency MTI reported this afternoon. The statement said that the current base lending rate "ensures the medium-term achievement of the inflation target and a corresponding degree of support to the economy".

The Council noted that inflation remains under the 3% "price stability" target over the MNBʼs whole forecast horizon for the period affected by monetary policy and is seen approaching the mark only in the first half of 2018.

The rate-setters also said that recent data suggest the risk of second-round effects resulting from an excessively low level of inflation expectations has diminished. They added that the expansionary impact on demand of next yearʼs draft budget is likely to speed up the closure of the output gap.

The Council said it expects growth to "pick up notably" in the second half of this year, following "moderate dynamics" in the first half. Growth will be supported by the unwinding of one-off factors as well as stimulus by both the MNB and the government. These stimulus measures, together with an expansion in home construction and the accelerated drawdown of European Union funding will help maintain a growth rate of "around 3%", the Council said.

Rising incomes and a pick-up in lending will contribute to an expansion in consumption, which will provide "considerable support" to economic growth in the coming years, the Council added.

The rate-setters also decided at the meeting to lower the top of the interest corridor, a band around the base rate that prevents extreme fluctuations of interbank rates, by 15 bps, bringing the O/N collateralised loan rate to 1.15% while keeping the O/N central bank deposit rate at -0.05%.

The Council cut the base rate by 15 bps at the previous two monthly meetings, too.

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