Hungary Monetary Policy


Hungary: Central Bank keeps rate unchanged again

November 25, 2014

The Central Bank decided to keep the base rate at 2.10% for a fourth consecutive month at its 25 November monetary policy meeting. This decision was widely expected by market analysts. In its accompanying statement, the Central Bank once again reaffirmed that the current level of the base rate is consistent with achieving price stability in the medium term and that it is supportive of the real economy.

Monetary policy authorities remained positive about the country’s economic outlook, noting that, “economic growth is likely to continue even as external demand has weakened slightly.” In addition, the Central Bank sees the economy growing in a, “more balanced pattern than previously,” with domestic demand contributing more to overall growth. Strengthening economic activity and domestic demand are further expected to narrow the output gap. The Bank pointed out that industrial production and the external sector recovered in September and that preliminary data suggest that retail sales were stable in the same month. Going-forward, consumption and investment are projected to grow. Increased EU funding and the Central Bank’s credit-easing initiatives, for example the Funding for Growth Scheme, are expected to sustain investment growth. Furthermore, the Bank pointed out that international investor sentiment recovered significantly in the last month on the back of several favorable international developments. Rising real disposable income and a lower need for deleveraging are seen as the main drivers of growing household consumption.

Regarding price developments, the Bank noted that inflationary pressures in the economy are moderate and that, “consumer prices continue[d] to show historically low dynamics,” in recent months. According to the Bank, while low inflation in external economies, favorable commodity price developments, spare capacity in the economy, subdued wage inflation and reductions in energy prices will keep inflation low for an extended period, an acceleration in economic activity and domestic demand is expected to drive inflation close to the Central Bank’s 3% target rate in the second half of the forecast period.

The Bank signaled that it will likely keep the base rate unchanged and reaffirmed its intention to maintain a loose monetary policy stance for an extended period of time. The next monetary policy meeting is scheduled for 16 December.

FocusEconomics Consensus Forecast panelists expect that the Central Bank will not modify the base rate this year and see it ending the year at 2.10%. For 2015, the panel sees the base rate ending the year at 2.55%.

Author: Teresa Kersting, Economist

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Hungary Monetary Policy Chart

Hungary Monetary Policy November 2014

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

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