Hungary's national bank freezes low base rate

The central bank's Monetary Council said that the outlook on inflation “remains moderate for an extended period”

Hungary's central bank has frozen its base rate at 0.9 percent on August 24 and would like to keep it that way for "as long as possible", according to reports.

Hungarian rate setters kept the base rate unchanged at a policy meeting on Tuesday, keeping the decision in line with the expectations of analysts.

The central bank’s Monetary Council signalled an end to an easing cycle in May and has since stood by its position on keeping the base rate on hold, while leaving room for the possibility of using unconventional monetary policy tools.

The Council also left the interest rate corridor, a band around the base rate that prevents extreme fluctuations of interbank rates, unchanged. The O/N collateralised loan rate, the top of the range, stands at 1.15 percent, while the O/N central bank deposit rate is -0.05 percent.

In a statement released after the meeting the Council said the outlook on inflation “remains moderate for an extended period”.

“If the assumptions underlying the [NBH’s] projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy,” the Council said, echoing statements made after policy meetings since May.

The Council added that a “watchful approach” to monetary policy is still justified because of uncertainty in the global financial environment.

The Council noted that a decision announced earlier in July to reduce the frequency of tenders for the NBH’s three-month deposits, its main sterilisation instrument, and limit the amount of bids it accepts “supports a further reduction in vulnerability and encourages lending using targeted unconventional tools”.

The rate-setters reiterated that a decision on the deposit limit will be taken in September.