Hungary Central Bank Maintains Status Quo For Third Month

(RTTNews) - Hungary's central bank left its key rate at a record low for the third consecutive month on Tuesday, and policymakers signaled that the interest rates are likely to remain unchanged in the near term amid low inflation and sustained growth.

The Monetary Council of the Magyar Nemzeti Bank decided to hold the base rate unchanged at 1.35 percent. The rate decision was in line with economists' expectations.

"If the assumptions underlying the Bank's projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period, over the entire forecast horizon, are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy," the bank said in a statement.

The bank had reduced the rates five times this year. The bank lowered it by 15 basis points each in March, April, May, June and July.

Policymakers said there continues to be a degree of unused capacity in the economy though growth is likely to continue and inflationary pressures are likely to remain moderate. They expect the negative output gap to close only gradually over the policy horizon. "The domestic real economic environment continues to have a disinflationary impact," the bank said. "Inflation remains substantially below the Bank's target."

The consumer price index dropped 0.4 percent annually in September. However, core consumer prices rose 1.3 percent.

The bank expects inflation to move to positive territory in the coming months, but to remain substantially below the 3 percent target. Inflation is only likely to rise to levels around 3 percent at the end of the forecast horizon, policymakers said.

Capital Economics economist William Jackson saw little risk of deflation becoming entrenched. If inflation continues to undershoot the National Bank's forecast, then rate cuts may come back onto the agenda over the next few months, the economist said, while retaining the view that the policy rate will remain at 1.35 percent throughout this year and next.