Hungary: Central Bank leaves base rate at 0.90% in August
August 23, 2016
The Central Bank of Hungary (NBH) left its base rate unchanged at a record low of 0.90% at its 23 August monetary policy meeting, in line with market expectations. Similarly, the NBH kept the overnight collateralized lending rate at 1.15% and the overnight deposit rate at minus 0.05%. While the NBH ended a prolonged rate-cutting cycle in May and has held the base rate constant since, the Bank continued to ease monetary conditions thereafter using unconventional policy measures. Particularly, the NBH unveiled several steps in July that aim to push funds out of the benchmark facility into the private sector and government securities in order to reduce government bond yields and increase lending to the private sector.
At its August meeting, the Bank highlighted that despite GDP growth picking up in Q2 following Q1’s slump, the Hungarian economy was still performing below potential, thus keeping inflationary pressures muted. Against this backdrop, inflation remains well below the Bank’s 3.0% target—in fact consumer prices fell in annual terms in July—and the NBH does not expect inflation to rise to the target until the first half of 2018. In the Bank’s view, a gradual narrowing of the output gap will be supported by fiscal and monetary stimulus—including the Bank’s extended Funding for Growth Scheme, the government’s efforts to boost housing construction and accelerated absorption of EU funds—thereby bringing inflation up. As for its future monetary policy decisions, the NBH noted that the outlook for inflation and the real economy pointed to keeping the base rate at 0.90% and promised to maintain its loose monetary policy for an “extended period”. The next monetary policy meeting will be held on 20 September.