Hungary: Central Bank leaves the base rate unchanged in May
May 22, 2018
At its latest monthly monetary policy meeting held on 22 May, 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 maintaining all other monetary policy instruments unchanged. Accordingly, the one-week collateralized lending rate for banks and the overnight collateralized lending rate both 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 was motivated by its goal of supporting prices and reaching its inflation target amid subdued inflation. Headline inflation rose to 2.3% in April from 2.0% in March, remaining below the midpoint of the inflation target of 3.0% with a tolerance band of plus or minus 1.0 percentage point. Inflationary pressures from strong domestic demand have picked up but are being offset by employers’ social contributions at the beginning of this year, as well as by cuts to the corporate tax rate in 2017. As a result, the Bank foresees inflation remaining in the lower half of the tolerance band in the months ahead and reaching the 3.0% target under current monetary conditions by the middle of 2019.
The Bank’s forward guidance remained unchanged this month, reaffirming that monetary conditions will remain accommodative for a “prolonged period”. The MNB said it will continue to monitor developments in the monetary sector and will act, if necessary, to ensure monetary conditions remain accommodative. Despite volatility in international markets, which has led to the weakening of the forint and the upward shift in the Hungarian yield curve, the Bank remains committed to looser monetary conditions, and a hold on rates or further monetary easing is more likely than a rate hike in the foreseeable future.
The next monetary policy meeting will be held on 19 June, which will be followed by the release of a new inflation report.
Hungary Interest Rate Forecast
FocusEconomics Consensus Forecast panelists see the base rate ending 2018 at 0.90%. For 2019, the panel sees the base rate ending the year at 1.14%.
Author: Lindsey Ice, Economist