Hungary: Central Bank keeps rate at record-low, signals to maintain level until end-2017
October 20, 2015
At its meeting on 20 October, the Central Bank of Hungary (NBH) expectedly left the base rate unchanged at the record-low 1.35% for a third consecutive meeting after having cut it gradually from 2.10% to 1.35% in five successive meetings. Adding to this, the NBH signaled that it is likely to keep the rate at this low level until the end of 2017 due to low inflation and the economy performing below potential.
The NBH pointed out that consumer prices fell in September and projects that subdued inflationary pressures will persist for a prolonged period, due to “the low cost environment”. While the Bank sees inflation returning to positive territory in the next months, it foresees inflation remaining below its 3.00% target during the next year and approaching the target only at the end of 2017.
Regarding the Hungarian economy, the Central Bank noted that GDP continued to expand in Q2 and that more recent indicators suggest that growth remained intact in Q3, highlighting a solid expansion in industrial production in August and robust dynamics in retails sales and the labor market. In addition, the Bank pointed out that domestic demand is gaining importance as driver of economic growth. According to the NBH, going-forward, an acceleration in private-sector investment will partly compensate for slowing public investment over decreasing EU transfers. Moreover, the Bank pointed out that recently Hungary’s financial markets remained relatively stable despite increased volatility in global markets due to uncertainty regarding the timing of the looming U.S. interest rate hike and concerns over slowing emerging market economies. The next monetary policy meeting is scheduled for 17 November.