At its meeting this Tuesday, the Monetary Council of the National Bank of Hungary (MNB) reviewed the latest economic and financial developments and decided not to change of central bank base rates with effect from August 30, but leave it at 13.00%. At the same time, the interest rate corridor was narrowed.
In the Monetary Council’s assessment, it is necessary to maintain tight monetary conditions in order to achieve price stability. At today’s meeting, the Council left the base rate unchanged at 13 percent. The current level of the base rate is adequate to manage fundamental inflation risks. With the acceleration of disinflation, the domestic real interest rate will soon move to positive territory, which will help to achieve the inflation target.
The Monetary Council continued to normalise the interest rate environment at the previous pace in August. In accordance, the Council decided to reduce the interest paid on optional reserves by 100 basis points, from 15 to 14 percent at today’s meeting, with effect from 30 August. In addition, the O/N collateralised lending rate serving as the top of the interest rate corridor was lowered by 100 basis points to 16.5 percent. According to the Council’s assessment, it is also warranted to reduce the interest rate on the one-day quick deposit tenders and foreign exchange swap tenders by 100 basis points.
In the Monetary Council’s assessment, looking ahead, strengthening monetary policy transmission is also an important factor of achieving price stability. For this reason, the Bank will use the instruments to absorb interbank forint liquidity on a long-term basis in the coming period.
In the Monetary Council’s assessment, maintaining the current level of the base rate will ensure that inflation expectations are anchored and the inflation target is achieved in a sustainable manner. Looking ahead, financial market stability is also key to achieving price stability. In the current environment, a cautious and gradual approach is warranted. The MNB is constantly assessing the effects of international financial market developments on the domestic risk environment, incoming macroeconomic data and developments in the outlook for inflation. If the improvement in risk perceptions persists, the Bank will continue to close the gap between the interest rate conditions of one-day tenders and the base rate.


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