Economy
Hungary central bank holds policy meeting
Low inflation, rates on hold
The MPC has left the 0.9% base rate on hold today. The interest rate corridor was also left unchanged, hence the overnight deposit rate remains -0.15% and the O/N collateralised loan rate is still 0.9%. The decision is in line with the market’s call, since no fundamental factors important for monetary policy warranted a change.The central bank has every right to be relaxed, as inflation remains persistently under its medium-term target. The consumer price index rose 1.9% year on year in February, matching market expectations. Core inflation was higher at 2.5%, but the underlying processes continue to suggest low price pressure. Analysts believe that inflation will remain under the 3.0% target for a long time, there is no indication the MNB should modify its loose monetary policy stance.
Ákos Kuti, director of MKB Bank’s Analysis Centre, underlined that in its March Report on Inflation MNB staff raised their GDP estimates both for 2018 and 2019, while the CPI projections were left on hold. This also suggests that the central bank does not expect meaningful inflationary pressure to be formed looking foward, he added.
The yield environment remained largely the same both globally and locally compared to the previous month, Kuti explains why he expects unchanged monetary conditions. He stressed that the relative position of the yields on Hungary’s long-maturity bonds compared to the region and the Eurozone remains close to early-February levels, i.e. around all-time lows.
Are more unconventional measures up the MNB’s sleeve?
MNB Deputy Governor Márton Nagy projected at a Portfolio conference last week that both corporate and household lending will pick up, which sparked speculation that the central bank will take steps in this direction. It would not be surprising since the MNB had implemented several measures over the last few years to boost lending, but we should not expect such a “surprise" move this time, because- lending is on an ascending path;
- the economy is growing rapidly, in a balanced structure;
- the output gap is also closing up/has closed up.
Consequently, it does not seem timely that the MNB makes a move in this respect now, unless it wants to add fuel to the fire.
No rate hike for a while
Analysts do not believe the MNB will change rates this year, projecting monetary tightening for the second half of 2019. At the same time, some even think that rates will not be raised until 2020. The focus is not so much on the base rate, though, as it has almost completely lost its role as a benchmark, rather than other monetary policy tools. From this point of view, changes to the Bubor are of paramount importance."We continue to believe that the MNB will maintain its no change policy, and bringing BUBOR levels closer to the base rate could start in the second half of 2019," forecasted Péter Vizkelety, head of treasury at Fundamenta Lakáskassza.
Péter Virovácz, chief economist at ING Bank, thinks that the earliest the MNB could start hiking rates is the first quarter of 2020, i.e. he expects monetary tightening to follow the start of tightening by the ECB with a delay of about six months.
The first step could easily be a “raise" to the Bubor, i.e. the implementation of measures that will lead to a rise to the Bubor, but taking the O/N deposit rate higher is also a possibility, said Virovácz.
The Monetary Council is set to release its official post-meeting statement at 3. P.M. today, which should shed light on the reasons behind today’s rate call as well as on what we should expect in terms of monetary policy in the future.
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