MNB keeps base rate on hold, as expected

Tourism

Jessica Fejos

The National Bank of Hungaryʼs Monetary Council decided to keep the central bankʼs key rate on hold at 1.35% during a policy meeting yesterday, Hungarian news agency MTI reported. The decision was in line with analystsʼ expectations. 

(Photo: Jessica Fejos)

The Council has kept the base rate on hold since signalling an end to an easing cycle at a policy meeting in July 2015. 

In a statement released shortly after the rate-setting meeting, the Council said economic growth was continuing, with a degree of unused capacity remaining in the economy and the domestic real economic environment having a disinflationary impact.  

The Council said inflation is still substantially below the MNBʼs target. The annual inflation rate was unchanged and core inflation remained broadly the same in January 2016. Measures of underlying inflation continued to indicate moderate inflationary pressures in the economy.  

Inflation may be lower over the short term than earlier expected, and it may remain below the 3% target over the forecast period, and is only likely to approach this target by the end of the forecast horizon. 

Slower growth in emerging markets and the deceleration in funding from the EU will lead to a slowdown in economic growth in the first half of this year. A recovery is expected from the second half of 2016. 

Domestic financial markets remained stable even in the deteriorating investor environment. The forint exchange rate has been broadly unchanged and long-term government bond yields have overall been lower in the period since the previous policy decision.  

In the Councilʼs assessment, a cautious approach to monetary policy is still warranted due to uncertainty in the global financial environment. 

Based on available information, the current level of the base rate and maintaining loose monetary conditions for an extended period are consistent with the medium-term achievements of the inflation target and a corresponding degree of support to the economy. 

The Council constantly monitors whether looser monetary conditions ensure the sustainable achievement of the inflation target. The Council may ease monetary conditions further in view of the March Inflation Report. 

The abridged minutes of the Council meeting will be published on March 9, 2016. 

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