Central bank keeps base rate on hold at 1.35 pc, as expected

Budapest, November 17 (MTI) – Hungarian rate-setters on Tuesday kept the central bank’s key rate on hold at 1.35 percent.

The decision was widely expected after the Monetary Council clearly signalled an end to an easing cycle at their monthly policy meeting in July. Central bank governor Gyorgy Matolcsy said at the time that the earlier series of 15 basis point cuts carried out for five consecutive months would soon come to an end.

In a statement released after the meeting, the Council reiterated that the base rate could remain at its record low level “for an extended period over the entire forecast horizon” in order to attain the medium-term inflation target while supporting the economy, the Council said.

Inflationary pressures are “likely to remain moderate” and the negative output gap — the difference between the economy’s actual output and its full capacity potential — is “expected to close only gradually” over the policy horizon, the members said. A “cautious” approach to monetary policy is still warranted due to uncertainty in the global financial environment, it added.

Equilor senior analyst Monika Kiss said that since the central bank is expected to maintain the base rate at its current level over the entire forecast horizon and will increasingly rely on unconventional policy tools to stimulate the economy. Given that the European Central Bank is expected to extend its quantitative easing programme in December, the central bank is not likely to implement these unconventional tools until early next year, she said.

Daniel Bebesy, portfolio manager of Budapest Alapkezelo, said that despite the fact that inflation is expected to rise in Q4, it is unlikely that the central bank will have to radically alter its monetary policy in the near future.

Erste Bank senior analysts Vivien Barczel and Gergely Urmossy said the Federal Reserve’s potential rate increase expected in December could make it difficult for the central bank to keep the rate low for very long, adding, however that the NBH could keep the base rate at 1.35 percent until at least the end of 2016.

Source: http://mtva.hu/hu/hungary-matters