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Financial News: Hungary Holds Rate Steady; Details Asset Purchase Terms

Hungary Holds Rate Steady; Details Asset Purchase Terms

04/28/2020 - 12:07:00 (RTTNews)

(RTTNews) - Hungary's central bank left interest rates unchanged on Tuesday, after it raised lending rates early April, and decided on the terms of its asset purchase programme that is aimed to reduce the shock from the economic disruption caused by the coronavirus, or Covid-19, pandemic. The Monetary Council left the base rate unchanged at 0.90 percent, the Magyar Nemzeti Bank said, in line with expectations. The previous change in the rate was a 15 basis points cut in May 2016.

The central bank kept the deposit rate unchanged at -0.05 percent and the overnight and one-week lending rates each at 1.85 percent.

The two lending rates were raised by 95 basis points each on April 7, to widen the interest rate corridor and make it symmetrical. In its bid to support the financial markets, the MNB had also launched a fixed-rate collateralised lending facility with up to five-year maturity. The bank expanded the scope of eligible collateral and granted exemption from reserve requirements to the banking system. Policymakers announced a funding for growth scheme on April 20 to boost funding for domestic companies. "This year's macroeconomic data will show significant volatility and dichotomy," the MNB said in a statement. "In the first half of 2020, growth is likely to slow significantly, reflecting the negative economic effects of the pandemic; then domestic growth, the labour market, lending and foreign trade are expected to pick up again as the negative effects wane and lost economic activity is regained."

The bank forecast headline inflation to fall below its target due to falling oil prices and then stabilize around 3 percent. Core inflation is projected to be around 3.2-3.5 percent this year and then ease to 3 percent. The bank said it will purchase government securities, with a minimum maturity of three years, at market prices in the secondary market, under the scheme announced on April 7. The bank will buy fixed-rate forint mortgage bonds with a minimum maturity of three years from the primary and secondary markets. Both programmes will be launched on May 4 and will continue as long as needed, the bank said, adding that it is ready to fine-tune the terms of the asset purchase programme when necessary.

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