articleimg-1
Sep 20, 2017

The National Bank of Hungary’s Monetary Council lowers overnight deposit rate to -0.15%

The council said that the central bank’s 3.0 percent inflation target is expected to be achieved by the middle of 2019, one quarter later than in a projection released three months earlier

The National Bank of Hungary’s Monetary Council has announced that it will keep the central bank’s key rate on hold at 0.90 percent.

According to MTI, the bank took a number of further measures to ease monetary conditions in light of lower than expected inflation.

The council lowered the O/N central bank deposit rate from -0.05 to -0.15 percent, reduced the cap on three-month deposits, its main instrument for sterilizing liquidity, to 75 billion HUF, and decided to raise the stock of swap instruments.

"The council left the O/N collateralized loan rate, the top end of the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates, unchanged at 0.90 percent," MTI states. "The council has left the base rate on hold since signaling an end to an easing cycle at a policy meeting in the spring of 2016."

However, the rate-setters have made use of such “unconventional, targeted” instruments to ease monetary policy further.

In a statement released after the meeting, the council said that the easing measures were warranted by the “repeated delay in the date of meeting the inflation target” and tighter conditions necessary to achieve that target.

According to MTI, the council said that the central bank’s 3.0 percent inflation target is expected to be achieved by the middle of 2019, one quarter later than in a projection released three months earlier.

“Maintaining the base rate and loose monetary conditions for an extended period are necessary to achieve the inflation target in a sustainable manner,” the council said.

“The Monetary Council will continue to monitor closely the risks to inflation and developments in monetary conditions, and will stand ready to ease them further using additional unconventional, targeted instruments,” the statement added. The council also noted that the external environment continues to pose a downside risk to inflation.