Hungary keeps rates unchanged

Bloomberg

Hungary left its monetary policy unchanged despite a slowdown in inflation and a rally in the forint, warning of continued risks to global
investor sentiment amid a resurgence in coronavirus.
The central bank kept the rate offered on required reserves at 0.6% and the overnight deposit rate at minus 0.05%, as forecast by all economists in a Bloomberg survey. It also pledged to maintain the difference between the base rate and its most influential tool, the 1-week deposit rate that currently stands at 0.75%, as long as investor appetite towards the emerging-market assets
remains fragile.
“The increase in risk aversion vis-a-vis emerging markets continues to pose the greatest risk in terms of the outlook for inflation,” the central bank said in a statement. “It’s the central bank’s clear intention to prevent the current uncertain global market environment from causing an increase in
upside risks to inflation.”
The comments come as some investors have started to speculate that the forint’s rally in the wake of an agreement between Hungary and the European Union over the bloc’s budget and slowing inflation would prompt a cut in the 1-week deposit rate as early as Thursday.
The instrument is designed to contain the fallout from changes in investor risk sentiment that earlier propelled the forint to its weakest ever. In September, the central bank lifted short-term interest rates to respond to a selloff that was fueled by two cuts to the base rate.
Forward-rate agreements used to wager on the one-week deposit rate in one month’s time indicate a roughly 50% chance of a reduction to 0.6% in the next month.
“We need to maintain cautious monetary policy” due to uncertainty surrounding the inflation outlook, Deputy Governor Barnabas Virag said in an online briefing.