Hungary Monetary Policy


Central Bank leaves rate unchanged again

The Central Bank kept the base rate at 2.10% for a sixth consecutive month at its 27 January monetary policy meeting. This decision was widely expected by market analysts.

In the accompanying statement, the Central Bank noted that economic activity strengthened in recent months and that, “economic growth is likely to continue.” While the Bank stated that domestic demand picked up and is expected to be the main anchor of growth going forward, the Central Bank also noted that output is still below potential and that this is expected to improve, albeit only slowly due to subdued external demand. According to the Central Bank, private consumption is expected to pick up, driven by higher disposable incomes, and investment is expected to be sustained by the Central Bank’s Funding for Growth Scheme. However, the Bank stated that it foresees that lower EU funding and weak global economic activity will be a drag on investment.

Regarding price developments, the Central Bank highlighted that, “consumer prices show historically low dynamics,” and that it expects inflationary pressures to remain subdued for a prolonged period. According to the Central Bank, moderate inflationary pressures are caused by both international developments, such as low inflation in the global economy and low commodity prices, as well as domestic factors, such as spare capacity in Hungary’s economy and moderate wage dynamics. Going forward, the Bank said that it expects inflation to pick up, driven by strengthening domestic demand, and that it will approach the Central Bank’s 3.0% target towards the end of this year.

The Central Bank once again pointed out that the current level of the base rate is consistent with achieving price stability in the medium term and it also reiterated that it will likely maintain the current loose monetary conditions for a prolonged period. At the same time, the Central Bank moved toward a more dovish stance in stating that, “there has been a shift towards the alternative scenario implying looser monetary policy published in the December 2014 Inflation Report,” thus leaving the door open for further monetary policy easing.

FocusEconomics Consensus Forecast panelists expect see the base rate ending 2015 at 2.17%. For 2016, the panel sees the base rate ending the year at 3.08%.

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Hungary Monetary Policy Chart

Hungary Monetary Policy January 2015 0

Note: Central Bank base rate in %.
Source: Hungarian Central Bank (MNB).

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