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Slashes top of rate corridor by 450 bps to 20.5%
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All other interest rates remain unchanged
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Bank cautiously paves way to policy normalisation
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Quick deposit rate could be cut to 13% by Nov -analyst
(Adds deputy governor's comments, updates forint)
By Gergely Szakacs and Krisztina Than
BUDAPEST, April 25 (Reuters) - The National Bank of
Hungary slashed the top of its interest rate corridor by 450
basis points to 20.5% on Tuesday, while leaving other rates
unchanged, and said any change to its key 18% rate in coming
months would depend on risk assessment.
With many economists saying inflation in central Europe has
peaked, the Hungarian bank's move sets the stage for the
region's first rate cut since 2021, when policymakers began
tightening sharply to quell surging inflation.
The Hungarian central bank is performing a delicate and
risky balancing act, preparing the ground for policy easing to
help the stagnating economy, while inflation is still above 25%.
Deputy Governor Barnabas Virag told a briefing that the bank
will exercise caution when deciding on changes to the 18% quick
one-day deposit rate.
He said any changes in the 18% effective policy rate will be gradual, adding that analysts' expectations for the 18% rate to converge with the 13% base rate sometime in the autumn looked "realistic" as a decline in inflation is expected to accelerate. "Markets' rate expectations will be an important element of our decision-making map," Virag said, adding that transparent communication will also be key.
The interest rate corridor is used to guide interbank
markets toward the policy rate, putting limits on rate-setting.
The bottom rate, used for overnight deposits, stands at 12.5%.
The bank left its benchmark base rate unchanged
at 13%, the European Union's highest, as widely expected, and
cautiously paved the way to what Virag has called a "multi-step
process" towards policy normalisation.
"The central bank will take into account the persistence of
improvements in risk perceptions at the following policy
meetings before making a decision to setting the interest rate
conditions of overnight instruments," it said in a statement.
However, the bank, which has come under pressure from Prime
Minister Viktor Orban's government to reduce borrowing costs,
made no firm commitment on the exact timing of the first
reduction in its main 18% quick deposit rate launched in October
to stem the forint's plunge to record lows versus the euro.
"For now, we think that the daily deposit rate will be cut
from 18.00% to 13.00% by November (which would take it in line
with the (NBH's) base rate)," Capital Economics analyst Nicholas
Farr said in a note.
The forint initially firmed after the
announcement, then eased to 376.75 by 1415 GMT on the bank's
comments.
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Central Europe inflation ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Gergely Szakacs and Krisztina Than; Editing by
Sharon Singleton)
