Today's Monetary Council action went exactly as expected

HUNGARY - In Brief 21 Jul 2020 by Istvan Racz

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At its regular monthly rate-setting meeting, the Council acted exactly matching the preliminary indications from vice governor Virág earlier this month. It reduced the base rate by another 0.15%-point to 0.6%, while strongly suggesting that it would not continue to lower the rate further. Specifically, the Council's statement said that it was important to keep distance from zero as regards the base rate, and that in case growth prospects deteriorated, the Bank would therefore respond by reinforcing its Credit for Growth (NHP Hajrá) and enterprise bond purchasing programs, indirectly meaning instead of further rate cuts.All other interest rates remain unchanged. For the base rate to become effective as the main sterilisation rate, the Bank will need to offer to pay the new 0.6% interest on one-week deposits at its next tender on Thursday, but this can be pretty much taken for granted in advance.On other matters, the statement also said that it expects the average of adjusted core inflation to fall to 2.6-2.7% yoy in 2021 after 3.3-3.5% yoy this year, and that it now intends to carry out limited purchases of government bonds with maturities above 15 years, to lengthen the maturity structure of government debt. The Council described this action as a shift between collateralised loans and bond purchases to its own balance sheet.The rate cut had practically no immediate impact on EURHUF, as the move had been priced in already, in the wake of Mr. Virág's previous statement. In fact, the forint was even somewhat stronger than previously this morning, in view of the agreement announced on EU budget matters in Brussels in the early hours of the day. The latter was no great vict...