Hungarian central bank likely to keep rate unchanged till end-2018

At its meeting on Tuesday Hungary’s central bank left its benchmark interest rate unchanged at a record low for a third consecutive month, in line with estimates. The overnight deposit rate, which was cut to negative in March, was left unchanged at -0.05 percent. The lending rate was kept at 1.15 percent.

The rate-setting Monetary Council said in a statement that followed that 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.

Policymakers plan to use more unconventional tools going forward. The monetary authority is accepting deposits in its benchmark facility once a month starting now in August, instead of weekly, and will begin capping deposits in October.

Hungarian economic growth picked up again in Q2 2016 following the temporary slowdown at the beginning of the year. A degree of unused capacity remains in the economy and inflation remains persistently below the Bank’s target. Consumer prices fell 0.3 percent in July from a year ago, dropping for a third consecutive month. Policy makers target 3 percent inflation in the medium term.

"The Council may maintain the current level of base rate till end-2018, and they use unconventional tools. We think that first the Council would like to see the effect of the new monetary policy mix before they announce any change," said KBC markets in a research.