Hungarian central bank leaves key rates unchanged

Credit: REUTERS/LASZLO BALOGH

The National Bank of Hungary left key interest rates unchanged on Tuesday, as expected, shifting attention to fresh signals about the policy outlook after a deeper-than-expected slump in second-quarter economic output.

Base rate 0.6%, O/N deposit rate -0.05%

Decision in line with analyst expectations

Bank to issue statement at 1300 GMT

Possible Sept policy tweaks in focus

BUDAPEST, Aug 25 (Reuters) - The National Bank of Hungary left key interest rates unchanged on Tuesday, as expected, shifting attention to fresh signals about the policy outlook after a deeper-than-expected slump in second-quarter economic output.

All 12 economists in an Aug. 17-18 Reuters survey said the NBH would leave its base rate HUINT=ECI on hold at 0.6% after 15-basis-point cuts in the past two months to shore up the economy hit by the COVID-19 pandemic.

The bank also left its overnight deposit rate HUODPO=ECI steady at -0.05%. At 1201 GMT, the forint EURHUF=D3 traded at 353.5 versus the euro, a touch stronger than one-month-lows around 353.7 just before the announcement.

Central Europe's worst-performing currency has been on a weaker footing since second-quarter data showed the economy contracted by 13.6%, the deepest downturn in the region, which has also triggered a surge in the budget deficit.

Most analysts say the base rate would bottom out at its current level after July inflation data HUCPIY=ECI came in higher than expected.

Some economists, however, expect the NBH to lower its base rate further in 2020 in response to a weaker economic outlook, provided that inflation retreats in the coming months and the forint remains stable around the 350 mark to the euro.

"The FX market is likely to take a closer look at the central bank's statement," Commerzbank economist You-Na Park-Heger said. "If the central bank were to sound more dovish, the downward trend in HUF might continue in the near future."

The NBH, which has deployed a range of tools, including bond purchases, to bolster growth, has ruled out further cuts in the base rate, saying it aimed to keep a safe distance from near-zero levels elsewhere in central Europe.

However, it had described its surprise June rate reduction, the first such move in four years, as a one-off measure, only to cut the rate further in July.

(Reporting by Gergely Szakacs Editing by Larry King)

((gergely.szakacs@reuters.com ; https://twitter.com/szakacsg ; +36 1 882 3606 ; https://www.reuters.com/journalists/gergely-szakacs))

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