Hungary’s central bank offered no surprise at its monetary policy meeting on October 20, keeping the benchmark interest rate at a record low of 1.35% amid a renewed return to deflation and a slowing economy. However, rate setters also pushed a dovish message further.

The move to hold rates was widely expected and is in line with the central bank’s guidance to keep monetary conditions loose for an extended period. That has been the message since the Magyar Nemzeti Bank (MNB) ended its latest easing cycle in July.

However, in the statement accompanying the rate decision, the rate setters offered more explicit forward guidance.

“If the assumptions underlying the bank’s projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period, over the entire forecast horizon, are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy”, the MNB said.

The forecast horizon currently spans to the second half of 2017. The recent return of weakness in inflation clearly prompted the more dovish note in the statement. Hungarian consumer prices sank 0.4% y/y in September, ending a four-month rising streak. CPI is not expected to rise towards the MNB’s 3% target until at least 2017.

“If inflation continues to undershoot the MNB’s forecast, then rate cuts may come back onto the agenda over the next few months," William Jackson at Capital Economics suggests. "For now, though, we are sticking to our long held forecast that the policy rate will remain at 1.35% throughout this year and next.”

Slowing economic growth is also becoming a worry for the MNB, analysts at KBC point out. GDP growth came in at 2.7% in the second quarter, the first time it has ducked under the 3% mark in two years.

Moreover, recent macro figures suggest the slowdown will continue in the third quarter. “The deteriorating economic outlook worries the government and the MNB as well. Although the phrase of central bank’s communication is still the inflationary developments, the decisions are influenced more by the economic developments”, the analysts say.