Hungarian Parliament building

Hungary Monetary Policy March 2020

Hungary: MNB leaves base rate unchanged at March meeting; unveils liquidity measures

On 24 March, the Monetary Council of the Hungarian National Bank (MNB) as expected left the base rate unaltered at the historical low of 0.90%, where it has been since March 2019, and held all other existing instruments steady. Meanwhile, it announced liquidity measures to cushion the economic impact of the coronavirus pandemic.

The Central Bank left the interest rate corridor unchanged despite the backdrop of a deteriorating global economic environment due to the Covid-19 pandemic. The Bank noted it expects inflation, which fell to 4.4% in February from 4.7% in January, to return to its tolerance band of 3.0% plus or minus 1.0 percentage points by March and then fall rapidly below the 3.0% target due to the drop in oil prices.

The MNB announced new liquidity measures in order to alleviate the economic fallout from the coronavirus, including a long-term collateralized lending facility offering unlimited liquidity. It is to be offered to commercial banks at a fixed interest rate–yet never below the base rate of 0.90%–with maturities of 3, 6 and 12 months, as well as three and five years, which should incentivize the purchase of government bonds and provide a backstop for the banking sector. Moreover, the Bank also waived banks’ obligations to comply with reserve requirements, thus freeing up liquidity to be used for lending.

Looking ahead, the MNB stressed that it will closely monitor incoming data, particularly the impact of Covid-19 on the financial markets and the macroeconomy, and stated that it stands ready to take additional liquidity measures should they be necessary.

The next interest-rate setting meeting is scheduled for 28 April.

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