Hungary’s central bank held the benchmark interest rate at a record low of 1.35% at its monetary policy meeting on January 26, despite a slowing economy and inflation stuck well below target. However, rate setters raised their dovish tone and suggested unconventional measures to further loosen policy are on the way.

The move to hold rates was widely expected, and is in line with the central bank’s guidance that it will keep monetary conditions loose for an extended period, but plans no move for the benchmark. That has been the message since the Magyar Nemzeti Bank (MNB) ended its latest easing cycle in July.

In the statement accompanying the decision, the rate setters retained their dovish tone, reaffirming forward guidance that rates will likely stay on hold until the end of the current forecast horizon; i.e. the end of 2017. They mentioned, however, that the use of unconventional measures to achieve the inflation target is likely to continue.

“The Monetary Council constantly monitors whether the resulting looser monetary conditions ensure the sustainable achievement of the inflation target. In this context, the Council closely examines developments in the foreign monetary environment, particularly the measures of the European Central Bank. If the Monetary Council considers it necessary, further monetary loosening will be implemented, primarily using the existing unconventional tools,” the statement reads.

Even though inflationary pressures are starting to build up within the economy – CPI accelerated to 0.9% y/y in December from 0.5% a month earlier – the resumed fall in oil prices will continue to weigh on the index. That is raising expectations that the MNB might embark on more rate cuts.

“This scenario may prevail at the earliest in 2Q16, after the ECB announces further easing measures, and additional light is shed on the steepness of the Fed’s policy rate trajectory in March,” note analysts at Erste. “In this case, we see room for 30-40bp worth of cuts. Therefore, the base rate can be cut to 0.95-1.05% in 3-4 steps.”