Hungary Looks Past Forint Drop to Maintain Loose Policy

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(Bloomberg) --

Hungary’s central bank left its monetary policy setup unchanged, ignoring a depreciation in the forint and a surge in core inflation in one of the European Union’s fastest-growing economies.

The central bank, which has pledged to make substantial adjustments only on a quarterly basis, left the overnight deposit rate at -0.05% on Tuesday, matching economists’ predictions. It also left the parameters of its unconventional measures, as well as its policy guidance unchanged.

The most dovish central bank in the EU’s eastern wing will probably wait for new economic projections to be published next month before a comprehensive monetary-policy review. While rate setters have identified disinflationary risks to the outlook, mostly due to a slowing world economy, core price pressures have increased, reflecting a tight labor market and soaring consumption.

Hungary Looks Past Forint Drop to Maintain Loose Policy

“A dichotomy remains between the factors determining likely developments in inflation,” rate setters said in a statement. “Buoyant” domestic demand is boosting inflation, while weakening global growth is restraining it, they said.

Loose financing conditions, as well as deteriorating global risk appetite, have contributed to the forint’s decline. It’s been the fourth-worst among 24 emerging markets over the past month and traded at 334.65 per euro at 3:48 p.m. in Budapest, near a 336.31 record reached in September.

“Hungary’s currency has failed to get any support from monetary policy,” said David Nemeth, an analyst at KBC Group NV’s unit in Budapest. Due to the disinflationary external environment, “any tightening steps in the near future are unlikely,” he said.

©2019 Bloomberg L.P.

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