National Bank Of Hungary May Keep Base Rate Unchanged Until 2018, 2019

  • 28 Oct 2015 8:00 AM
National Bank Of Hungary May Keep Base Rate Unchanged Until 2018, 2019
The National Bank of Hungary (NBH) may keep its base rate at a record-low 1.35% base rate until 2018 or even 2019, beyond its horizon for monetary policy, deputy governor Márton Nagy told Reuters. Nagy also said that the NBH will announce a set of incentives to boost business lending next Tuesday, and it expects to close a deal to acquire a majority stake in the Budapest Stock Exchange within weeks.

He was speaking to reporters on the sidelines of a conference organised by the financial website portfolio.hu. The NBH has cut the benchmark rate to 1.35% from a mid-2012 peak of 7% in two cycles, helped by consumer-price deflation.

The bank expects to meet its policy objective - 3% inflation in a +/-1 percentage-point tolerance band - by the end of 2017. But that will not necessarily lead the bank to raise rates, Nagy said.

“The base rate can remain low for a sustained period, even in 2018, but I cannot rule out that even in 2019, beyond the policy horizon” of six to eight quarters, he said. Not raising rates as inflation accelerates would mean giving Hungary negative real interest rates, which Nagy said was necessary as long as a negative output gap persists.

“Negative real interest rates are not just an opportunity but a must,” he said. “Inflation targeting is the most important, but inflation targeting also allows real interest rates to turn negative, even on a sustained basis.

“The output gap remains negative, and while the inflation target is achievable, negative real interest rates must be maintained to close the output gap,” Nagy said.

He also said the central bank, which has stressed that local banks should lend more in return for a reduction in a punitive bank tax starting next year, will offer a set of incentives next Tuesday to boost lending to companies.

“This will include the lending stimulus package and details on phasing out the Funding for Growth Scheme,” Nagy said.

Nagy also said the central bank expects to close within weeks a deal to acquire a majority stake in the Budapest Stock Exchange.

Source www.hungarymatters.hu - Visit Hungary Matters to sign-up for MTI’s twice-daily newsletter.

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