The National Bank of Hungary’s Monetary Council said that financial constraints would start with adjustments to unconventional policy tools ahead of changes to the base rate, the minutes from a monthly policy meeting in December show.
“The Monetary Council was prepared for the gradual and cautious normalisation of monetary policy, which would begin with the modification of unconventional instruments,” according to the minutes released on Wednesday. Notably absent from the minutes – as well as from the Council’s statement issued after the meeting on December 18 – was any remark on maintaining the current level of the base rate, as in the statements released after policy meetings in previous months.
The Council noted in the minutes that core inflation, excluding indirect tax effects, is rising, signalling “the strengthening of persistent inflationary trends”. The minutes noted that the Council decided to leave the average amount of liquidity to be crowded out in the first quarter of 2019 unchanged “at least at HUF 400bn-600bn”. The minutes show the Council voted unanimously to keep the central bank’s key rate on hold at 0.90% at the December policy meeting. The Council has left the base rate on hold since signalling an end to an easing cycle at a policy meeting in the spring of 2016.