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Central Bank To End Easying Cycle As Base Rate Hits Record-Low In Hungary

By Tamás Székely // 2016.05.25.

Hungarian rate-setters cut the central bank’s (MNB) key rate by 15 basis points to 0.9% at a monthly policy meeting. The decision was in line with market expectations. “Based on available information, the inflation outlook and the cyclical position of the real economy point to maintaining the 0.9% base rate for an extended period,” the Council said in a statement after meeting, signalling an end to the easing cycle.

The Council noted that inflation remains below the 3% “price stability” target over the MNB’s whole forecast horizon for the period affected by monetary policy and is seen approaching the mark only in the first half of 2018. The rate-setters also said that recent data suggest the risk of second-round effects resulting from an excessively low level of inflation expectations had diminished.

The expansionary impact on demand of next year’s draft budget is likely to speed up the closure of the output gap. The Council expects growth to “pick up notably” in the second half of this year, following “moderate dynamics” in the first half. Government stimulus measures, together with an expansion in home construction and the accelerated drawdown of EU funding will help maintain a growth rate of “around 3%”, the Council said.

The rate-setters also decided at the meeting to lower the top of the interest corridor, a band around the base rate that prevents extreme fluctuations of interbank rates, by 15 basis points, bringing the overnight collateralised loan rate to 1.15% while keeping the O/N central bank deposit rate at -0.05%.

via and MTI