Hungarian Parliament building

Hungary Monetary Policy May 2020

Hungary: MNB stays put in May meeting

On 26 May, the Monetary Council of the Hungarian National Bank (MNB) left the base rate unaltered at 0.90% and held all other existing instruments steady, leaving the overnight deposit rate at minus 0.05%, and the one-week and overnight collateralized lending rates at 1.85%. The decision had been largely expected.

The decision to stay put reflected the Central Bank’s optimism that the economy will show resilience and pick up from the current weak backdrop, after GDP growth slowed to 2.2% year-on-year in Q1, an over three-year low. Moreover, while inflation dropped to 2.4% in April on lower fuel prices, thus falling below the 3.0% target, the Bank noted that it sees inflation gradually stabilizing at the target. It also stated that the liquidity measures introduced to alleviate the economic fallout from the Covid-19 health crisis, including the government securities purchase program launched on 4 May, have helped lower market volatility, stabilize the currency, improve liquidity and flatten the yield curve.

Regarding forward guidance, the MNB stated in its communiqué that it will continue to closely assess incoming data and any potential changes to the outlook, and stressed it stands ready to use “every instrument at its disposal to achieve price stability and support the Hungarian economic and financial system”.

Commenting on the Central Bank decision, Peter Virovacz, senior economist at ING Hungary, noted:

“The NBH is still trying to play ‘economy psychologist’. It painted a relatively optimistic picture about how quickly Hungary will be able to turn around that ship which was steered away by Covid-19. In contrast with our expectation, the NBH did not make any groundwork for an upcoming downward revision to the economic outlook. QE will remain with us, but as we expected, the NBH won’t use this at any time, rather using it as a safety net if things go wild.”

The next interest-rate setting meeting is scheduled for 23 June.

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