articleimg-1
Jun 22, 2016

National Bank of Hungary holds record low interest rate

The bank will keep rates on hold "as long as possible" and only adjust if necessary

The National Bank of Hungary left its main interest rate unchanged at a record low 0.9 percent, as expected, and repeated a pledge to keep policy loose, reports Reuters today.

The central bank ended three months of rate cuts in May, declaring the benchmark rate adequate to support the economy and meet its medium-term inflation goal.

The NBH maintained its economic growth projection of 2.8 percent for this year despite a rapid slowdown in the first quarter to 0.9 percent, one of the lowest growth rates in the European Union, from 3.2 percent in the fourth quarter. However, it saw low interest rates for a sustained period.

"If the Monetary Council assesses it necessary in the future, it may also decide to use unconventional tools," it added in its post-meeting statement.

According to its fresh economic projections the bank also said it expected a slightly higher inflation path than before, although still expects inflation to approach its target level of 3 percent only in the first half of 2018.

The bank will keep rates on hold "as long as possible" and only adjust non-conventional policy if and when necessary, central bank deputy governor Marton Nagy said after last month's meeting.

But sources of uncertainty remain. One is the British Brexit referendum on whether to remain a member of the European Union. A vote to leave could cause a flight to safety, hurting countries like Hungary.

Brokerage Equilor said in a note that the Hungarian market was already focused in Brexit on the short term and a plausible ratings upgrade in the medium term.

"What if the British vote to leave? Could that force the (NBH) to raise interest rates? We think that can be excluded," Equilor wrote.

"The Hungarian market is looking ahead at the July 8 ratings assessment deadline by Moody's."