Hungarian central bank leaves rates steady, will ramp up bond purchases

Credit: REUTERS/LASZLO BALOGH

The National Bank of Hungary left key interest rates unchanged on Tuesday and said it would increase its government bond purchases amid a worsening economic outlook this year caused by the coronavirus pandemic.

By Gergely Szakacs and Krisztina Than

BUDAPEST, Aug 25 (Reuters) - The National Bank of Hungary left key interest rates unchanged on Tuesday and said it would increase its government bond purchases amid a worsening economic outlook this year caused by the coronavirus pandemic.

The NBH has deployed a range of tools, including bond purchases and rate cuts, to bolster growth. It 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.

Its rate-setting Monetary Council said the 0.6% base rate supported price stability, financial stability and economic recovery "in a sustainable manner."

The bank said it would increase the amount of its weekly government bond purchases in the long segment of the Hungarian bond market.

"Due to the weaker-than-expected GDP data, a revision of the economic outlook for this year has become necessary, which will be made in the projection of the September Inflation Report," the bank added in a statement.

Earlier, the bank had projected economic growth of 0.3% to 2.0% for 2020, even as the government forecast a deepening recession.

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.

The bank also left its overnight deposit rate HUODPO=ECI steady at -0.05%. At 13.27 GMT, the forint EURHUF=D3 traded at 353.85 versus the euro, slightly weaker than levels before the bank's statement and down about 0.5% on the day.

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.

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

(Reporting by Gergely Szakacs and Krisztina Than; 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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