Hungary: Central Bank stands pat in July
At its latest monetary policy meeting held on 24 July, the Monetary Council of the Hungarian National Bank (MNB) decided to leave the base rate unchanged at its current record low of 0.90%, while also holding steady all other monetary policy instruments. Accordingly, the one-week collateralized lending rate for banks and the overnight collateralized lending rate each remained at 0.90%, and the overnight deposit rate stayed at minus 0.15%. The decision was motivated by manageable inflationary pressures and was in line with market expectations.
The Bank’s latest move came against a backdrop of well-anchored inflation forecasts and strong economic momentum. Headline inflation picked up to 3.1% in June from 2.8% in May, rising above the midpoint of the Bank’s tolerance band of 3.0% plus or minus 1.0 percentage point. However, this was primarily due to higher oil prices. The Bank projects that higher oil prices will likely keep inflation elevated above the midpoint temporarily in the months ahead, but price pressures should eventually fade. The Bank also noted inflationary pressures from rising wages are moderating, and reductions in employers’ social contributions and VAT cuts should offset upside risks from strengthening domestic demand and a tight labor market. As such, the Bank expects inflation to reach the midpoint of the target by the middle of 2019.
The Bank held firm to its commitment to accommodative monetary conditions for the foreseeable future, adding that volatility in financial markets and increasing capital flight will lead to a more “cautious approach”. Moreover, it also noted the ECB’s monetary policy decisions could considerably influence its monetary policy stance.
The next monetary policy meeting will be held on 21 August.