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Financial News: Hungary CB Leaves Rate Unchanged

Hungary CB Leaves Rate Unchanged

05/23/2017 - 09:36:00 (RTTNews)

(RTTNews) - Hungary's central bank on Tuesday left its key interest rate unchanged at a record low for a twelfth consecutive month in May as it expects growth to gain momentum in future and inflation to reach its target sustainably from the first half of next year.

The Monetary Council of the Magyar Nemzeti Bank left the base rate unchanged at 0.90 percent, in line with economists' expectations.

"In the Council's assessment, some degree of unused capacity has remained in the economy, but this is likely to be absorbed gradually as output grows," the bank said in a statement.

"If inflation remains persistently below the target, the Council will stand ready to ease monetary conditions further using unconventional, targeted instruments," the MNB added.

The bank had cut the key rate by 15 basis points in March last year, which was the first reduction in eight months. Similar size cuts were repeated in April and May last year.

The overnight deposit rate, which was lowered to negative last year, was unchanged at -0.05 percent.

The overnight collateralized loan rate was also kept unchanged at 0.90 percent. The rate was last trimmed in November when it was cut by 15 basis points.

The one-week lending rate was also held steady at 0.90 percent. The rate was previously reduced by 10 basis points in November.

The Hungarian economy grew 4.1 percent year-on-year in the first quarter and the central bank forecast stable annual economic growth between 3 to 4 percent this year.

Inflation eased to 2.2 percent in April mainly led by the decline in the price index for fuel, due primarily to base effects.

The bank projected inflation to reach the 3 per cent level consistent with price stability in a sustainable manner from the first half of 2018.

Capital Economics economist Liam Carson expects core inflation pressures to build over the second half of this year as space capacity dries up and fiscal policy continues to be loosened.

The economist said this threatens to push the headline inflation figure above the central bank's 3 percent target.

"This could prompt the MPC to rein in extremely loose monetary conditions, initially via an unwinding of the National Bank's unconventional policy easing measures," Carson said.

"That would push interbank interest rates up from around 0.15 percent at present to the benchmark rate of 0.90 percent by end-2017. Following that, hikes to the policy rate are likely in 2018."

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