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UPDATE 1-Hungary central bankers rule out further cuts in base rate
November 29, 2016 / 7:56 AM / in a year

UPDATE 1-Hungary central bankers rule out further cuts in base rate

* More cuts could trigger unintended consequences -cbankers

* Loose policy framework to prevail at least until end-2017

* To accept up to HUF 400 bln of 3mo deposits at Dec tender (Adds detail, more comments)

BUDAPEST, Nov 29 (Reuters) - Any further cuts in Hungary’s 0.9 percent base rate could lead to unintended consequences, the central bank said on Tuesday, adding that unconventional tools to manage banking system liquidity were more efficient at this stage.

The National Bank of Hungary (NBH) kept the base rate unchanged at a monthly policy meeting last week but cut its overnight lending rate for the second month in a row.

That reduction followed weaker-than-expected third-quarter growth and was consistent with the central bank’s aims of increasing liquidity in interbank markets and keeping borrowing costs low for businesses and households.

Deputy Governor Marton Nagy and Managing Director Barnabas Virag said in Tuesday’s paper that the central bank’s loose monetary policy framework can prevail at least until the end of next year, or even into 2018 or 2019.

“In the current situation, unconventional tools to channel banking system liquidity can contribute to reaching the objectives of the NBH more efficiently than lowering the base rate,” the central bankers said.

The importance of the base rate as a benchmark has declined as the central bank has started to limit the amount of funds commercial banks can keep in its three-month deposits.

It aims to cut the volume of deposits to about 900 billion forints ($3.07 billion) by the end of this year and will decide on the desired end-of-March level of the three-month facility at its upcoming policy meeting on Dec. 20.

As part of those efforts, the central bank said it would accept up to 400 billion forints of three-month deposits at the next tender of the facility in December, in line with last week’s accepted amount.

The bank said its revamped monetary policy framework has helped reduce interbank rates by 45 basis points to 0.57 percent over three months, while the yield on three-month Treasury bills fell by 47 basis points to below 0.3 percent.

It said a narrowing of the interest rate corridor implemented over the past months would further loosen monetary conditions and reduce the volatility of shorter interbank rates.

Last week the bank cut the collateralised loan rate by 15 basis points to 0.9 percent, having lowered the rate by 10 basis points in October. It left the overnight deposit rate on hold at -0.05 percent.

$1 = 293.24 forints Reporting by Gergely Szakacs; Editing by Catherine Evans

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