Magyar Nemzeti Bank Reaffirms Appropriateness of Hungary’s Monetary Policy Stance

September 22, 2015

Hungary’s Monetary Council retained a 1.35% Base Rate and released a statement that

  • Concluded “inflation is likely to be below the inflation target this year and next, and is expected to rise to levels around 3 per cent only in the second half of 2017.”
  • Attributed unfavorable global financial developments to “Greek government debt problems,concerns over growth in emerging economies and China, disturbances in Chinese capital markets and uncertainty about the interest rate increase by the US Fed.”
  • Opined “that the current level of the base rate and maintaining loose monetary conditions for an extended period, over a longer horizon than expected, are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy.”
  • Replaced the two-week deposit facility with the three-month deposit rate as the central bank’s operative monetary policy instrument henceforth.

Previously from August 2012 through July 2013, the main interest rate was cut every month, reducing such from 7.0% to 4.0%.  Over the ensuing year, the steady reductions continued, cutting the key rate by a further 190 basis points to 2.1%.  After a pause from August 2014 through February 2015, easing resumed with five straight cuts of 15 basis points each in March through July to the current low level of 1.35%.  Today’s statement talks of two-sided risk associated with its baseline forward guidance.  Even looser monetary conditions than assumed in the baseline forecast could be warranted in the event of a “persistently low cost environment and strengthening second-round effects,” but it’s also possible that tightening might have to commence somewhat sooner than imagined.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.