Hungary: Central Bank leaves base rate unchanged in June
At its latest monetary policy meeting held on 19 June, the Monetary Council of the Hungarian National Bank (MNB) decided to keep the base rate at its current record low of 0.90%, while also holding steady all other monetary policy instruments. The decision was motivated by manageable inflationary pressures and well-anchored inflation expectations. Accordingly, the one-week collateralized lending rate for banks and the overnight collateralized lending rate each remained at 0.90%, and the overnight deposit rate stayed at minus 0.15%. The announcement was widely in line with market expectations.
The Bank’s decision came against a backdrop of rising, but near target, inflation. Headline inflation rose to 2.8% in May from 2.3% in April, marking the third consecutive month of acceleration but also of inflation remaining below the midpoint of the Bank’s tolerance band of 3.0% plus or minus 1.0 percentage point. However, temporary factors were behind the acceleration, with rising fuel prices contributing the most to the increase. On the other hand, and although wages are growing strongly and economic output is approaching potential, domestic price pressures are being offset by the gradual reduction of employers’ social contributions and lower corporate taxes. Strong domestic demand was again the main driver of growth in Q1, and robust retail sales growth in April suggests low unemployment and robust wage growth will continue driving growth in Q2. As a result, under the current monetary conditions, the Bank foresees inflation rising above 3.0% in the months ahead largely on the back of higher oil prices, before moderating toward the midpoint of the target by the middle of 2019.
The Bank reaffirmed that monetary conditions will remain accommodative for a “prolonged period of time”, adding it will continue to monitor developments in the monetary sector and act, if necessary, to ensure monetary conditions remain accommodative. Despite protracted volatility in international financial markets and increasing capital flight, which has led to some volatility in the forint, the Bank has made clear that loose monetary conditions will be maintained for the foreseeable future.
The next monetary policy meeting will be held on 24 July.