Hungarian base rate likely to remain unchanged until 2017-end

The Monetary Policy Council (MPC) of the National Bank of Hungary kept the base lending rate on hold at 0.9 percent during a rate-setting policy meeting on Tuesday. The Council also left the interest rate corridor (a band around the base rate) unchanged. The overnight collateralized loan rate, the top of the range, stands at 1.15 percent, while the overnight central bank deposit rate is -0.05 percent.

The statement repeated the previous months’ messages, that the negative output gap is narrowing gradually and the consumer price index may reach the inflation target of 3 percent in 2018. It noted that the economy has accelerated in 2Q16 after the poor performance in 1Q16 and the measures by the NBH and the government and also the EU funds usages makes the 3 percent GDP growth achievable.

“If the assumptions underlying the Bank’s projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy,” the MPC noted.

Analysts expect the Hungarian base rate to remain unchanged until the end of 2017, inching up to 1.25 percent by the end of the 2018 election year.

"We expect no action coming from the NBH in August and the statement will also likely remain the same as it was in July. The main focus will be on the BUBOR (interbank rate) as the NBH would like to see its level below the base rate," notes KBC research in a report.