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Hungary Monetary Policy October 2018

Hungary: Central Bank stands pat in October

At its latest monetary policy meeting held on 16 October, 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 largely in line with market expectations. As part of its shift towards monetary policy normalization announced in the Council’s September decision, the Bank also revealed the conclusion of mortgage bond purchases in the secondary market.

The Bank’s decision was once more motivated by its goal of achieving its inflation target in a sustainable manner and by the wish to maintain a monetary policy similar to that of the European Central Bank. Headline inflation rose from 3.4% in August to an over five-year high of 3.6% in September, thus moving further above the Bank’s 3.0% target but still within its tolerance band of plus or minus 1.0 percentage point. Volatile fuel and unprocessed food prices, as well as the increase in excise taxes on tobacco products, were the main drivers of the acceleration in inflation in the final month of Q3. The Bank projects that robust consumer spending, higher oil prices and excise taxes will keep inflation above the 3.0% target in the coming months, partly offset by well-anchored inflation expectations. However, inflation should sustainably reach the target from mid-2019, on the back of a moderation in economic activity.

The Bank’s forward guidance reiterated that loose monetary conditions remain necessary in order to nudge growth towards its potential and bring inflation to the 3.0% target on a sustainable basis. However, it also restated its readiness to normalize the monetary stance in the near-term, although the timing and intensity of the Bank’s normalization of monetary policy will depend on the monetary policy decisions taken by the European Central Bank and the evolution of the outlook for inflation.

The next monetary policy meeting will be held on 20 November.

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