Hungary’s central bank left the key interest rate unchanged at a record low for the sixth consecutive month on Tuesday, saying that growth continues and inflation remains substantially below the target.
The Monetary Council of the Magyar Nemzeti Bank held the base rate steady at 1.35 percent. The decision was in line with economists’ expectations.
“A degree of unused capacity remains in the economy, and therefore the domestic real economic environment continues to have a disinflationary impact,” the bank said in a statement.
“In the Council’s assessment, the reduction in unused capacity is stopping temporarily as economic growth slows, and therefore the negative output gap will close only at the end of the policy horizon,” the bank added.
The MNB stressed on the need for a cautious approach to monetary policy due to uncertainty in the global financial environment. The bank also said that further monetary loosening will be implemented, when needed, primarily using the existing unconventional tools.
Earlier this month, the Hungarian central bank adopted some unconventional policy measures such as phasing out the two-week deposit facility and provided for more active use of interest rate swaps.
Headline inflation accelerated to 0.9 percent in December from 0.5 percent in the previous month. The bank expects the sharp fall in the oil price to lead to low inflation in the short term.
“Inflation is expected to remain below the 3 per cent target over the forecast period, and is only likely to approach it by the end of the forecast horizon,” the bank said.
Slower growth in emerging markets and the deceleration in funding from the EU will lead to a slowdown in growth this year, the central bank noted.
However, the bank expects a recovery from the second half of 2016, mainly reflecting the strengthening performance of Hungary’s export markets as well as different policy measures.
“Monetary conditions are set to stay extremely accommodative over the next 12-18 months,” Capital Economics economist William Jackson said.
The material has been provided by InstaForex Company – www.instaforex.com