Hungary central bank leaves rates unchanged, as expected

Credit: REUTERS/LASZLO BALOGH

The National Bank of Hungary (NBH) left interest rates unchanged on Tuesday, as expected, after weaker-than-forecast September consumer prices data eased concerns about inflation.

By Gergely Szakacs

BUDAPEST, Oct 20 (Reuters) - The National Bank of Hungary (NBH) left interest rates unchanged on Tuesday, as expected, after weaker-than-forecast September consumer prices data eased concerns about inflation.

The decision to keep the base rate steady at 0.6% HUINT=ECI and the overnight deposit rate at -0.05% HUODPO=ECI was in line with the unanimous forecast of economists in a Reuters poll last week.

At 1201 GMT, the forint EURHUF=D3, central Europe's worst-performing currency, with a 9% loss for the year, traded at 366.4 per euro, a touch weaker than 366 just before the announcement.

Just two days after keeping rates on hold at its September meeting, the bank raised the interest rate on its one-week deposit facility by 15 basis points to 0.75% NBHK to arrest a slide in the forint.

Last week, the bank did not change the interest rate on the facility, which allows it to manage liquidity in the banking system and influence short-term rates, but some analysts say it may need to raise it further in the coming weeks.

"The number of coronavirus cases has been rising rapidly since early September and the death toll has recently started to increase as well," said economist Marek Drimal at Societe Generale.

"While the situation in Hungary is not as critical as e.g. in the Czech Republic, it still translates into rising risks to the economy and sentiment."

Pressured by a rise in COVID-19 cases, the forint reached three-week lows at 366 per euro on Monday, giving up short-lived gains posted after September inflation data came in below expectations.

"With inflation somewhat further away from the upper limit of the (NBH's) inflation target band, we think that the (NBH) may tolerate more depreciation than previously," economists at Goldman Sachs said in a note.

"However, were the currency to depreciate significantly further – say, to 370 against the euro – we would expect the (NBH) to respond with further tightening."

(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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