Hungary central bank leaves key rates on hold, as expected

BUDAPEST: The National Bank of Hungary left interest rates unchanged on Tuesday, as expected, as a retreat in inflation and gains by the forint eased pressure on the bank to tighten policy further.

The NBH kept its base rate at 0.6% and the overnight deposit rate at -0.05%, in line with the unanimous forecast of economists in a Reuters poll.

At 1303 GMT, the forint, traded at 361.36 versus the euro, a touch stronger than 361.45 just before the announcement. The bank will publish a policy statement at 1400 GMT.

The NBH unexpectedly raised the interest rate on its one-week deposit facility by 15 basis points to 0.75% in September, amid a rise in domestic inflation and higher risk aversion caused by the second wave of the coronavirus pandemic.

But local inflation slowed in October and the forint gained to two-month highs last week during a global market rally on progress towards a COVID-19 vaccine, giving the bank room to breathe.

Central Europe's worst-performing currency pared some of its gains since Monday after Hungary and Poland vetoed the European Union's budget. Economists at Commerzbank said that was unlikely to have a near-term policy impact.

"The MPC is likely to note that the pricing behaviour which caused inflation to move up in a counterintuitive manner after the first corona wave could return after the second wave too - hence, it is too early to celebrate," Tatha Ghose said in a note.

"The MPC will likely assess that monetary conditions should be kept tight at the short end by keeping the depo rate at 0.75%, while some loosening of QE programmes appears possible over the coming months."