Monetary Council Leaves Base Rate Unchanged

At its meeting on 25 July 2023, the Monetary Council of the National Bank of Hungary (MNB) reviewed the latest economic and financial developments and decided to leave unchanged the central bank base rate at 13% with effect from July 26, 2023.

MNB’s primary objective is to achieve and maintain price stability. Without prejudice to its primary objective, the Bank preserves financial stability and supports the government’s economic policy, as well as its policy on environmental sustainability, the Bank says in a press release.

In the Monetary Council’s assessment, it is necessary to maintain tight monetary conditions in order to achieve price stability. The current level of the base rate is adequate to manage fundamental inflation risks.

The Council says the still favorable risk environment has enabled the Bank to continue the normalization of the interest rate environment at the previous pace. In accordance, the Council decided to reduce the interest paid on optional reserves by 100 basis points, from 16 to 15 percent at today’s meeting, with effect from 26 July. In addition, the O/N collateralized lending rate serving as the top of the interest rate corridor was lowered by 100 basis points to 17.5%. 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.

The Council is of the view that 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 the gradual convergence of the interest rate conditions of one-day tenders to the base rate at the previous pace.