Hungary: Central Bank leaves rates unchanged and leaves door open for unconventional measures
June 21, 2016
At its meeting on 21 June, the Central Bank of Hungary (NBH) left its base rate untouched at 0.90%, meeting market expectations. The NBH also left the overnight collateralized lending rate at 1.15% and the overnight deposit rate at minus 0.05%. The apparent policy stabilization follows an extended period of rate cutting, which started in July 2012 when the policy rate stood at 7.00% and ended at the current record-low in May 2016. In an effort to further support growth, the Bank raised the amount available in the Funding for Growth Scheme—set up in June 2013 to support lending to SMEs—by HUF 100 billion (USD 350 million).
Overall, the Bank stated that the outlook for inflation and the real economy pointed to keeping the base rate at 0.90% for a prolonged period. Inflation decreased marginally in May and inflationary pressures remained moderate according to the Bank, given the weak global inflation dynamics. However, the Bank points to strong wage growth and a gradual pickup in GDP growth as an indication that inflation should rise to near to its 3.0% target in the first half of 2018.
The Monetary Council, the NBH’s decision making body, vowed to maintain its loose monetary policy for an “extended period of time” and left the door open to the use of unconventional monetary policy measures should developments call for such action in the future.
Author: Christopher Mc Innes, Economist