Hungary: Central Bank leaves base rate and all monetary policy instruments on hold
January 25, 2017
At its 24 January monetary policy meeting, the Monetary Council of the Hungarian National Bank (MNB) left the base rate unchanged at its current record low of 0.90% and also kept all remaining monetary policy instruments on hold. The one-week collateralized lending rate for banks and the overnight collateralized lending rate stood at 0.90% and the overnight deposit rate at minus 0.05%. The decision to leave the base rate on hold met market expectations.
The Central Bank decision largely reflects the latest economic developments and the country’s inflationary trend. The most recent economic indicators suggest that the country remains on a solid footing. In November, retail sales and industrial production expanded and the unemployment rate fell further. Low unemployment, ongoing wage growth and strong labor demand will boost private consumption, which is set to remain the main engine of economic growth. Strong private consumption coupled with an accommodative monetary stance by the MNB is expected to push GDP growth over 3.0% in the coming years.
Regarding price developments, inflation rose to 1.8% in December, an over three-year high. Despite the jump, inflation remains below the 3% target and is not expected to reach it until the first half of 2018. In addition, the latest data show that inflation rose in many developed economies. If this trend persists, it may pose a new challenge to the central banks of those economies.
Against this backdrop, the MNB decided to leave the base rate and all existing mechanisms unchanged since it is consistent with its aim to reach the inflation target and provide the economy with some support. Nevertheless, the MNB stressed its willingness “to ease monetary conditions further using unconventional, targeted instruments,” if needed to achieve the inflation target.
The next monetary policy meeting will be held on 28 February.