Hungary's central bank keeps interest rate on hold despite global volatility

The rate-setting Monetary Council of Hungary's central bank opted to keep its benchmark two-week deposit rate at 2.1 percent, it announced on Tuesday, despite international economic turmoil.

The bank acknowledged a jittery investor mood triggered by turbulence on the Russian money market, the uncertainties leading up to this past weekend's Greek elections, sinking oil prices, the unexpected Swiss central bank decision to free-float the franc, and the European Central Bank's decision to expand its asset-purchasing program. All this underlines the need for a cautious monetary policy, said the bank in a statement published on its website on Tuesday afternoon.

The bank has kept the 2.10 percent rate steady since last July following a two-year period of steady rate cuts from 7 percent, slicing the benchmark by 490 basis points overall. It has repeatedly said it is focused on reaching a 3 percent inflation target by the end of this year.

In the meantime, shrinking oil prices combined with government-initiated cuts in household energy prices have led to overall deflation, with the Consumer Price Index dropping by 0.9 percent in December, albeit the core inflation rate (which excludes food and energy) was up by 0.8 percent year on year, according to web-based financial terminal YCharts.

The bank's statement noted its expectation of continued economic growth. Economic activity still had plenty of room to expand, being below its potential, and domestic demand had been picking up but wasn't sufficient to counterbalance the slow recuperation of the international market, which was still below capacity.

Employment was growing but the jobless rate was still higher than it needed to be on long term. All that suggests that the 3 percent inflation rate targeted was unlikely to be reached before the end of this year or the start of 2016. Enditem