Hungary: Central Bank stands pat in December
At its latest monetary policy meeting held on 18 December, the Monetary Council of the Hungarian National Bank (MNB) left 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 was in line with market expectations.
The Bank’s decision was motivated by its goal of achieving its inflation target in a sustainable manner and was influenced by the loose monetary policy stance of the European Central Bank. Headline inflation fell from 3.8% in October to 3.1% in November, largely due to falling fuel prices, thus approaching the Bank’s 3.0% target. That said, headline inflation has grown more volatile in the autumn months, while core inflation has been rising steadily, signaling intensifying inflationary pressures. The Bank therefore stated that it will pay closer attention to core inflation going forward. The MNB expects solid domestic demand will keep core inflation above 3.0% in early 2019, which will moderate subsequently on the back of softening economic activity.
The Bank’s forward guidance reiterated that loose monetary conditions remain necessary in order to bring inflation to the 3.0% target on a sustainable basis. Nevertheless, it also stated the Bank has already started to normalize its monetary policy stance and will continue to do so. The timing and degree of the Bank’s monetary policy normalization will depend mainly on the evolution of core inflation at home. This means that the Bank will calibrate its decisions more on the evolution of the outlook for domestic inflation than on decisions taken by the European Central Bank.
The next monetary policy meeting will be held on 15 January.