INT World Fuel Services Corporation

   By Margit Feher 
 

BUDAPEST--Hungarian rate setters unanimously voted in December in favor of keeping the benchmark rate unchanged at its record low and agreed that they will use unconventional tools, instead of interest rates, to loosen monetary conditions further, minutes of their Dec. 15 rate meeting, published Wednesday, show.

All members of the nine-strong rate panel argued that "the inflation target could be achieved in a sustainable way by holding the base rate unchanged for an extended period and by using unconventional, targeted monetary policy instruments."

The council members are examining "thoroughly" the range of tools they may use, the minutes added.

The National Bank of Hungary, which reduced its benchmark rate to a record low 1.35% in July, kept its main rate steady in December for the fifth consecutive month as analysts had expected. The policy rate was 7.0% in August 2012, when it started its monetary easing.

At December's rate meeting, the central bankers agreed they should pursue policies that will push inflation close to the 3% inflation target not just for a short period but for an extended period--as they put it, "in a sustainable" way.

"To this end, solid economic growth and maintaining loose--if necessary looser than the current--monetary conditions were required over an extended period," they said.

Annual headline inflation was 0.5% in November. And most analysts expect Hungary to keep its benchmark rate unchanged at its current level into 2017.

The rate-setters reckon unconventional monetary-policy instruments are more effective than the benchmark rate to reduce the yields of long-maturity government bonds denominated in the local currency.

"Government bond yields have come lower but they must be driven to the ground," central bank Vice Governor Marton Nagy said Dec. 18.

The central bank won't buy government bonds either on the primary or the secondary market to influence yields, but will amend its existing unconventional tools in early 2016 to prompt commercial banks to buy more government bonds, Mr. Nagy said.

Through its unconventional tools, the central bank wants to push commercial banks to use their excess funds for buying government bonds and lending to the business sector, instead of depositing the funds with the central bank.

Write to Margit Feher at margit.feher@wsj.com; Twitter: @margitfeher

(END) Dow Jones Newswires

December 23, 2015 09:06 ET (14:06 GMT)

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