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Bloomberg
Hungary’s central bank left its main interest rates unchanged, sticking to a gradual shift towards the end of ultra-loose monetary policy as it assesses the need to curb brewing inflation pressures.
Rate setters left the rate on required reserves unchanged at 0.9 percent and the overnight deposit rate at minus 0.15 percent on Tuesday, with both decisions matching economists’ estimates. The central bank will comment on its unconventional monetary-policy measures and outlook in a statement in Budapest.
While central banks from London to Prague raised borrowing costs last year to combat inflation, policy makers in Budapest have stuck to unconventional tools and record-low interest rates to help boost lending and stimulate economic growth.
In recent weeks, Hungary’s monetary authority has been signaling the first tightening measures may be around the corner. Most analysts forecast an announcement in March.
“Hungary’s economy has reached a point where policy makers are willing to start to gradually withdraw monetary stimulus,†Marcin Kujawski, an economist at Nomura International Plc in London, said.
The shift towards a hawkish message may illustrate a disconnect with a continent that’s facing slower growth and inflation. The ECB said that risks to the economic outlook had moved to the downside. Czech rate setters, who hiked borrowing costs five times in 2018, have also shifted to a more cautious approach, while Poland sees its benchmark staying at a record low possibly until 2020.
But in Hungary, the tight labour market is pushing up wages, which in turn is leading to consumers spending more and helping drive price growth. Earlier this month, Deputy Governor Marton Nagy said core inflation excluding the effect of indirect taxes, policy makers’ favored measure for long-term inflation, could exceed 3 percent sometime in the first three months of the year, which would be a strong signal that tightening was needed.
The first step to cool the economy would be the unwinding of unconventional easing measures that have pushed interbank rates below the benchmark rate, now at 0.9 percent. Most analysts expect the central bank to start reducing the volume of foreign-currency swaps from $7.22 billion starting in March.