Hungary Monetary Policy February 2019


Hungary: MNB acknowledges policy normalization as it holds off in February

February 26, 2019

At its latest monetary policy meeting on 26 February, the Monetary Council of the Hungarian National Bank (MNB) left the base rate unchanged at its current record low of 0.90%, while also holding steady all other monetary policy instruments. The announcement landed in line with analysts’ expectations.

In what policymakers acknowledged as a phase of policy normalization, rates were held steady in line with the recent stabilization of inflation. Core inflation inched up in January but was mostly offset by lower fuel costs, leaving headline pressures below the MNB’s 3.0% target. Meanwhile, an improving appetite for emerging-market risk left policymakers hoping that inflation could remain near-target over the short-term. Domestically, economic growth is expected to cool somewhat over the next few quarters and should help keep inflation in check. As it stands, policymakers expect inflation to climb above 3.0% in the current quarter, before moderating thereafter.

As it normalizes policy, the MNB has made clear that it will strike a balance between the European Central Bank’s current holding pattern and the long-awaited unwinding of unconventional instruments. Most significantly, however, it will adjust the pace of any near-term rate hikes to the path of homegrown inflation. Owing to the stance taken by policymakers, namely that the MNB should proceed cautiously as it normalizes, FocusEconomics analysts do not currently expect a first rate hike until later this year.

Policymakers will meet again on 26 March.

Hungary Interest Rate Forecast

FocusEconomics Consensus Forecast panelists see the base rate ending 2019 at 1.12%. For 2020, the panel sees the base rate ending the year at 1.75%.


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