October 24, 2017 / 2:10 PM / 5 months ago

UPDATE 2-Hungary keeps rates steady, says ready to ease policy further

(Adds central bank comments, analyst, updates forint)

* Base rate, overnight deposit and lending rates unchanged

* Forint eases slightly after gains over the past week

* Central bank maintains dovish bias

* It says ready to ease monetary conditions further

By Gergely Szakacs and Krisztina Than

BUDAPEST, Oct 24 (Reuters) - Hungary’s central bank left interest rates on hold at record lows on Tuesday, in line with analysts’ forecasts, having effectively eased policy in recent weeks by boosting liquidity.

Central Europe’s most dovish central bank said after its rate decision that it was ready to ease monetary conditions further and was considering unconventional tools that could be applied.

Last month the bank cut its deposit rate by 10 basis points to -0.15 percent, and it has increased liquidity in forint markets via its forex swap tenders. The bank wants to drive yields on longer-dated government bonds lower.

“It is important for the Council to ensure that the low interest rate environment exerts its favourable effect as long as possible,” the Monetary Council said in a statement.

“The Council will stand ready to ease monetary conditions further and is considering unconventional instruments to be used accordingly,” it added.

By keeping interest rates at record lows for as long as possible, the central bank is also hoping to encourage mortgage borrowers to opt for fixed-rate loans.

“We can expect further monetary loosening in the upcoming months,” analysts at brokerage Equilor said in a note after the meeting.

An Oct. 16-19 Reuters poll of analysts suggested the bank would keep both its 0.9-percent base rate and the overnight deposit rate on hold on Tuesday.

The forint, which scaled a five-week-high last week, eased slightly after the bank’s comments.

At 1340 GMT, it traded at 309.45 versus the euro, down from 308.64 before the rate announcement.

However, the forint may remain relatively strong because the European Central Bank, which meets two days after the National Bank of Hungary, looks unlikely to shift quickly to a hawkish policy that could make Central European currencies less attractive.

“The European Central Bank is still likely to maintain loose monetary conditions for an extended period,” the Hungarian central bank said on Tuesday.

For a recent analysis on monetary policy in Central Europe, click on: (Reporting by Gergely Szakacs; editing by Hugh Lawson and Peter Graff)

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