The building of the NBH in Budapest – Photo: wikimedia

Central bank keeps base interest rate on hold

Hungarian central bank (NBH) rate-setters kept the base rate unchanged at 13.0 percent at a regular policy meeting on Tuesday. At the same time, the Monetary Council decided to narrow the interest corridor further, the upper band lowered by 100 basis points to 17.5 percent.

In a statement released after the meeting, the Council said it was also warranted to cut the interest rate on the NBH’s one-day quick deposits offered at daily tenders by 100bp.

The Council also decided to reduce the interest rate paid on optional reserves by 100bp to 15.0 percent.

It said the “still favourable risk environment has enabled the Bank to continue the normalisation of the interest rate environment at the previous pace”.

The Council said it was necessary to maintain tight monetary conditions in order to achieve price stability.

It said a global economic slowdown, the adjustment in energy and commodity prices and falling international freight costs pointed to a further decline in inflation rates. It added, however, that the slower decline in core inflation indicators suggested that a return to price stability may take longer than expected earlier.

The Council said it expected disinflation in Hungary to continue to accelerate, resulting in single-digit inflation by the end of the year, while core inflation may fall at a slightly slower pace. It put average annual inflation at 16.5-18.5 percent for 2023, 3.5-5.5 percent for 2024 and 2.5-3.5 percent for 2025.

At a press conference after the meeting, central bank deputy governor Barnabas Virag said a change to the current base rate was not on the agenda until there was a substantial and lasting slowdown in inflation. He said the aim was for disinflation to continue in 2024, adding that the exact figures would be contained in the NBH’s September Inflation Report.

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