Hungary: Central Bank stays put in August
August 21, 2018
At its latest monetary policy meeting held on 21 August, the Monetary Council of the Hungarian National Bank (MNB) decided to leave the base rate unchanged at its current record low of 0.90%, while also holding steady all other monetary policy instruments. Accordingly, the one-week collateralized lending rate for banks and the overnight collateralized lending rate both remained at 0.90%, while the overnight deposit rate stayed at minus 0.15%. The announcement came widely in line with market expectations.
The Bank’s decision was motivated by its goal of achieving its inflation target in a sustainable manner. Headline inflation picked up from 3.1% in June to an over five-year high of 3.4% in July, above the Bank’s 3.0% target but still within its tolerance band of plus or minus 1.0 percentage point. Nevertheless, the rise in inflation was mainly due to higher fuel prices. The Bank projects that higher oil prices will keep inflation above target in the coming months but rising price pressures should be offset by the reductions in employers’ social contributions, cuts in the VAT rate and inflation expectations currently anchored at low levels. Hence, given the confluence of these factors, the Bank expects the inflation target will be attained by the middle of 2019.
The Bank’s forward guidance remained unchanged from the previous month, reiterating that recent volatility in global financial markets continue pointing towards the adoption of a “more cautious approach” to its policy setting. It also noted, however, that the ECB’s monetary policy decisions, particularly as it is expected to end its QE program this year and begin normalizing policy in 2019, may have a considerable impact on the MNB’s policy stance.
The next monetary policy meeting will be held on 18 September.
Author: Javier Colato, Economist