Hungary: Central Bank stays put again
December 16, 2014
The Central Bank kept the base rate at 2.10% for a fifth consecutive month at its 16 December monetary policy meeting. This decision was in line with market expectations. In its accompanying statement, the Central Bank once again noted that the current level of the base rate is consistent with achieving price stability in the medium term and that it is favorable for economic activity.
The Central Bank remained positive about the country’s growth prospects and stated that it expects economic growth to continue in a “balanced pattern.” While monetary authorities expect domestic demand to be the main driver of economic growth, they foresee that subdued global growth and the weak performance of the euro zone will hold back exports growth. Regarding investment, the Central Bank pointed out mixed tendencies. While the Bank sees the Funding for Growth Scheme as supportive for corporate investment, it expects lower EU funding and subdued global economic prospects to be a drag on investment growth. Consumption is projected to pick up going forward, sustained by improving employment, rising real income and the conversion of foreign currency denominated loans into Hungarian forint (HUF).
Regarding price development, the Bank noted that it expects inflation to be “significantly below” the 3.0% target in 2015, due to weak external demand, low inflation in Hungary’s trading partners and falling commodity prices. The Bank sees inflation to approach the target in the second half of 2016, driven by a recovery in external demand and higher wages once the effects of the price shocks weaken.
The Bank pointed out that, “downside risks to inflation increased relative to September,” and reaffirmed its intention to maintain “loose monetary policy conditions for an extended period.” According to the Central Bank, persistently lower oil prices, subdued external demand and exchange rate depreciation due to intensified international conflicts constitute the major risks to the inflation outlook. The next monetary policy meeting is scheduled for 21 January.