Hungary Monetary Policy September 2017


Hungary: Central Bank eases monetary conditions further in September

September 27, 2017

At its 26 September monetary policy meeting, the Monetary Council of the Hungarian National Bank (MNB) kept the base rate unchanged at its current record low of 0.90%, as expected by market analysts. All of the other monetary policy instruments except the overnight deposit rate were left at their current rates. The one-week collateralized lending rate for banks and the overnight collateralized lending rate both remained at 0.90%, while the overnight deposit rate was cut 10 basis points to minus 0.15%. The upper limit on the stock of three-month Central Bank deposits was reduced from HUF 300 billion to HUF 75 billion.

The Bank’s decision to ease monetary conditions reflects persistent difficulties in meeting the inflation target. The Bank now foresees inflation reaching its target in the middle of 2019, two quarters later than it had anticipated in its June projection. VAT rate cuts scheduled for next year, along with moderate inflation due to a strong currency, have been keeping a lid on inflationary pressures. The upper limit on the stock of three-month Central Bank deposits was set at HUF 75 billion, in what the MNB set as its final reduction of the upper limit. The reduction on the upper limit in past meetings has exerted downward pressure on domestic market rates.

The Bank’s forward guidance was clear: Monetary conditions will remain loose and accommodative for an extended period of time to buttress economic growth, with a goal of achieving target inflation by mid-2019. The Council reaffirmed its commitment to easing monetary conditions further, if need be, to meet the inflation target.

The next policy meeting will be held on 24 October.

FocusEconomics Consensus Forecast panelists see the base rate ending 2017 at 0.90%. For 2018, the panel sees the base rate ending the year at 1.07%.

Author: Jean-Philippe Pourcelot, Economist

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Hungary Monetary Policy Chart

Hungary Monetary Policy September 2017

Note: Central Bank base rate in %.
Source: Hungarian National Bank (MNB).

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