Hungarian Parliament building

Hungary Monetary Policy July 2019

Hungary: MNB remains put in July meeting as inflation recedes

On 23 July, the Monetary Council of the Hungarian National Bank (MNB) opted to keep the base rate at its current record low of 0.90% and held stable all other existing instruments. Following a one-time hike of the overnight deposit rate in March’s meeting, the decision to hold fire was widely expected by financial markets given the dovish global backdrop and cooling global dynamics.

Cooling inflation and core inflation in June, together with a projected decline in price pressures from H2 owing to weaker activity in key trading partners, led MNB to hold fire. The Bank seems unconcerned about inflation remaining above-target amid buoyant domestic demand, and sees it gradually sliding in the second half of the year on “strengthening of external disinflationary effects” to the 3.0% target in 2020. The MNB did, however, opt to reduce the amount of liquidity made available to the banking sector through FX swaps and other monetary policy instruments, thus indicating a preference for deploying unconventional tools to address inflation risks rather than raising the policy rate.

With the global pullback from monetary tightening and increasing concerns over a protracted slowdown gripping European economic activity, the MNB maintained a dovish stance in its communiqué. Upside risks to the inflation outlook stem from overheating dynamics, a more expansionary stance by major central banks, and from the corporate bond buying program launched on 1 July. Although, a low inflation external environment will temper upward price risks. The MNB’s statement indicated that data from the second half of the year will be decisive in assessing the key inflation risks.

The next meeting is scheduled for 27 August.

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