Base Rate Kept at 13%, but Central Bank in Hungary Cuts O/N Collateralised Loan Rate

  • 24 May 2023 7:03 AM
  • Hungary Matters
Base Rate Kept at 13%, but Central Bank in Hungary Cuts O/N Collateralised Loan Rate
Hungarian central bank rate-setters decided to leave the base rate on hold at 13%, but voted to cut the central bank’s O/N collateralised loan rate by 100 basis points to 19.50% at a monthly policy meeting.

The Council left the O/N deposit rate, at the bottom of the “interest rate corridor”, at 12.50%. In a statement released after the meeting, the Council said its members had also decided to cut the interest rate on the central bank’s one-day quick deposits offered at daily tenders by 100bp.

It also decided to reduce the interest paid on optional reserves by 100bp from 18% to 17%.

The Council said it was necessary to maintain the current level of the base rate over a prolonged period in order to ensure “that inflation expectations are anchored and the inflation target is achieved in a sustainable manner”.

At a press conference, National Bank of Hungary governor György Matolcsy said the measure marked the start of the “normalisation” of monetary policy. He said the inflationary peak was being followed by disinflation.

Matolcsy said that after the twin deficits that had characterised the past two years, the stability of Hungary’s financial markets had improved significantly as a result of both external and internal factors.

He added, at the same time, that it was likely there would be no talk of lowering the base rate for a longer period of time.

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