Hungary central bank keeps rates steady, confirming inflation outlook

Fawad Maqsood July 23, 2019

BUDAPEST: The National Bank of Hungary (NBH) left interest rates unchanged and affirmed its accommodative stance on Tuesday, saying data since its June policy meeting confirmed its view of an expected decline in inflation from the end of this year.

The decision to keep the base rate at 0.9pc and the overnight deposit rate at -0.05pc was in line with the unanimous forecast of analysts in a Reuters poll last week.

At 1332 GMT, the forint traded at 325.75 versus the euro, a tad weaker than its 325.45 just before the bank announced its rate decision at 1200 GMT.

“Due to uncertainties related to the outlook for global economic activity, monetary policies across the world’s leading central banks continue to be increasingly cautious,” the Monetary Council said in a statement.

“Consistent with the downside risks related to economic activity in Europe and the euro area and communications from the European Central Bank (ECB), market participants are pricing in the loosening of monetary conditions over the short term.”

A rise in Hungarian inflation to the top of the bank’s 2pc to 4pc target range in the first half of 2019 has fuelled expectations the bank might follow March’s 10-basis-point increase in the overnight deposit rate with another rate increase.

However, a decline in headline inflation to 3.4pc in June from a seven-year high of 3.9pc in May and a retreat in the bank’s closely watched gauge of lasting price trends, tax-adjusted core inflation, have tempered tightening bets.

The central bank said incoming data since its previous meeting have confirmed the baseline scenario of its June inflation report, which forecast a gradual decline in the bank’s closely watched inflation gauge from the end of 2019.

The report projected tax-adjusted core inflation, the bank’s preferred measure of lasting price trends, peaking at 3.8pc in the fourth quarter and decline to 3.1pc in 2021.

“Buoyant domestic demand is boosting, and, from the second half of the year, weakening external activity is likely to restrain the pace of price increase,” the bank said.

“Future developments in the outlook for inflation will be a decisive factor in the necessity of further measures.”

Economists polled by Reuters see Hungary’s overnight deposit rate returning into positive territory only some time next year, with about 10 basis points of increases pencilled in.

The base rate is expected to remain unchanged until the end of next year, rising to 1.25pc by the end of 2021, according to the poll.

Copyright Reuters, 2019

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