Policy makers keep base rate on hold + inflation forecast

mnbThe Monetary Council of the National Bank of Hungary (NBH) decided to leave the central bank base rate unchanged, at 0.60pc, at a monthly policy meeting on Tuesday.

The Council also decided on Tuesday to leave the O/N deposit rate at -0.05pc and the O/N and one-week collateralised loan rates at 1.85pc. The O/N deposit rate and the collateralised loan rate mark the bottom and the top, respectively, of the central bank’s „interest rate corridor”. The base rate is paid on mandatory reserves and preferential deposits. In a statement released after the meeting, the Council reiterated its earlier policy stance.

„The monetary conditions established at the short end support price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner,” the policy makers said. The Council also repeated that it is „key” to keep short-term yields at a „safe distance from a range close to zero” as well as its commitment to „maintaining price stability during the coronavirus pandemic”.

The Council said it closely monitors „the persistence of inflationary effects” resulting from the economic recovery as well as „possible inflationary effects of financial market developments”. „If warranted by a change in the outlook for inflation, the [NBH] will be ready to use the appropriate instruments,” the Council added. The Council said the NBH will continue to set the rate for its one-week deposit facility at weekly tenders „in response to the increase in risk aversion vis-a-vis emerging markets”. „The Bank will maintain the difference between the base rate and the one-week deposit rate as long as warranted by inflationary risks,” they added.

The one-week deposit rate has stood at 0.75pc, 15bp over the base rate, since shortly after a monthly policy meeting in September. The condensed minutes of the meeting will be published at 2:00 in the afternoon on January 6.


The main forecasts in the NBH’s fresh quarterly Inflation Forecast were released with the Council’s statement. The full report will be published on Thursday.

The NBH projects CPI will edge up from 3.4pc in 2020 to 3.5pc-3.6pc in 2021, a slightly narrower range than the forecast in the previous Inflation Report. It sees CPI falling to 2.9pc-3.0pc in 2022 before reaching the 3.0pc mid-term target in 2023. The central bank projects Hungary’s economy will contract 6.0pc-6.5pc this year, overlapping the Finance Ministry’s projection for a 6.4pc decline in GDP.

The central bank forecasts a rebound to 3.5pc-6.0pc growth in 2021, a little more muted than the 4.4pc-6.8pc growth projected a quarter earlier. It puts GDP growth in 2022 at 5.0pc-5.5pc, close to the middle of the range of its earlier forecast.