Downward inflation creates riskst hough Central Bank of Hungary holds rates

The National Bank of Hungary (NBH) left interest rates unchanged on Tuesday, as expected, amid slowing domestic inflation, a worsening euro area economic outlook and global monetary easing.

The bank affirmed its accommodative monetary stance and also said that there are side risks to the longer-term inflation outlook due to lower-than-expected inflation data and worsening external economic environment.

“The monetary policy stance will continue to be accommodating,” the Monetary Council said in a statement.

“In terms of ongoing inflation trends, the downward risks have strengthened,” she said, adding that data in the second half of the year will be crucial to assessing these trends.

The bank will discuss its new quarterly inflation report and economic forecasts at its next meeting in September.

The decision to keep the key rate at 0.9% and the overnight deposit rate at -0.05% was in line with analysts’ unanimous forecast in a Reuters poll last week.

Hungary’s central bank Dovish has said any necessary adjustments to monetary conditions would be implemented through changes in the overnight deposit rate or its tools designed to regulate market liquidity.

However, the bank was under no pressure to act now. Inflation has slowed, and the economic outlook on the country’s main trading partner, Germany, has turned negative.

Inflation may still be above target, but it is falling behind; moreover, the real economic situation is falling all over the world, notably in Germany – an important economic partner. The European Central Bank is expected to ease policy substantially in September using depot rate cuts and beyond QE, “Commerzbank (DE: BQKG) said in a note ahead of Tuesday’s meeting.

At 1321 GMT, the forum (EURHUF = D3), which has weakened to 330 euros since the July rate meeting, traded at 329.00, a weaker touch from 328.85 levels before the bank’s comments.

Hungarian core inflation, which peaked at the NBH target band of 2 to 4% in May, had plunged to 3.7% by July. Last month, the bank said data since the June meeting confirmed its view of an expected drop in inflation by the end of this year./


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