NBH eases policy rate in line with expectations, signals an end to further easing

The National Bank of Hungary adopted to ease base rate by 15 basis points, largely in line with expectations, not surprising markets at all.

The central bank eased policy rate to 1.05 pct, from 0.9 pct. The O/N deposit rate was left unchanged again at -0.05 pct, while the O/N lending rate was moderated by 15bp to 1.15 pct, which also fits fully in to market expectations.

The most important part of the statement was that the NBH fears less about the second round effects of the continuously low inflationary environment as the wage dynamic has accelerated. It also stated that a looser fiscal policy shall help to close the negative output gap, KBC report mentioned.

"Based on available information, the inflation outlook and the cyclical position of the real economy point to maintaining the 0.9 pct base rate for an extended period," the statement mentioned.

The MPC’s comments are quite hawkish, pointing to the most likely scenario that there will not be any more rate cut. Rather the Council’s intention is to maintain the current base rate level for an extended period, even for two years, reports said.

Meanwhile, the Hungarian Forint strengthened slightly following the comment on no further easing in the near term.