Hungary Holds Rates and Considers More Unconventional Easing

  • Central bank eyes stable 1.35% benchmark over monetary horizon
  • Central bank ``closely'' monitoring ECB monetary policy steps

Hungary’s central bank left its benchmark rate unchanged for a sixth month, as policy makers said they’re ready to consider more unconventional monetary easing if needed to combat lower-than-forecast inflation and slowing economic growth.

The National Bank of Hungary left the three-month deposit rate at a record-low 1.35 percent on Tuesday, matching the forecasts of all 20 economists in a Bloomberg survey. Central bankers said in a statement they plan to keep the main rate at the current level “over the entire forecast horizon,” which is five to eight quarters.

As central banks around the world look for ways to counter the effects of plummeting commodities prices, Hungarian policy makers are sticking to a pledge to keep rates steady. Undeterred by a renewed drop in oil prices, which have prompted the monetary authority’s chief economist to flag a downward revision of the inflation forecast, the central bank’s focus remains away from rate cuts.

“If the Monetary Council considers it necessary, further monetary loosening will be implemented, primarily using the existing unconventional tools,” policy makers said. They added that they were particularly watching for any additional easing by the European Central Bank.

Forint Resilience

The forint has gained 0.9 percent against the euro this year, the best performance among the 24 emerging-market currencies tracked by Bloomberg. The yield on Hungary’s 10-year government bonds has risen by 58 basis points to 3.38 percent in the past 12 months, following similar moves in long-maturity debt globally after the U.S. Federal Reserve raised interest rates. That compares with a 25-basis-point decline in three-year notes and a four-basis-point drop in five-year debt.

Boosting its unconventional measures, the central bank said this month it would phase outa two-week deposit facility and boost the amount offered at interest-rate swap auctions by 20 percent to channel commercial-bank liquidity into government debt and to help cut yields. The steps have already reduced longer-dated bond yields and are “likely to continue declining as the announced measures are implemented,” rate-setters said in their statement.

Steady Rate

Policy makers have stuck to their pledge to keep rates steady even as strategists, including those at Raiffeisen Bank International AG, Nomura International Plc and JPMorgan Chase & Co., said this month they saw room for cuts.

Consumer prices rose 0.9 percent in December from a year earlier, the biggest gain since 2013 as a surge in food prices outweighed a plunge in gasoline costs. The central bank forecast in December that inflation would accelerate to an average 1.7 percent this year from 0.1 percent in 2015. That compares with the 3 percent medium-term target of policy makers.

Inflationary pressures will probably stay moderate “over a sustained period,” rate-setters said on Tuesday, as the “persistently low global inflationary environment is containing the increase in the domestic consumer price index.”

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