Hungarian Parliament building

Hungary Monetary Policy April 2019

Hungary: MNB holds steady in April

On 30 April, the Monetary Council of the Hungarian National Bank (MNB) left the base rate at its current record low of 0.90%, and held steady all other existing instruments. Analysts had expected as much following policymakers’ nominal tightening a month earlier.

Higher inflation did not warrant a response by the MNB as changes to monetary policy are typically tied to its inflation forecasts—which are revised on a quarterly basis. That said, policymakers acknowledged a by-now familiar contrast; domestic demand remains a force to be reckoned with, while external demand has continued to retreat. Taken together, and on balance, policymakers argued that inflation should hover near the MNB’s midpoint target of 3.0% in the near-term.

Analysts, on the other hand, see inflation rising in the coming months—and, with it, interest rates. That said, although the MNB is expected to normalize its monetary policy over the medium-term, policymakers remain dovish. Moreover, the MNB has clarified that it will strike a balance between the European Central Bank’s current holding pattern and the further unwinding of unconventional instruments. Most significantly, it is expected to adjust the pace of any near-term rate hikes to the path of homegrown inflation.

Ahead of the announcement, analysts at Goldman Sachs noted:

“Tax-adjusted core inflation, the Council’s preferred measure for gauging inflationary pressures, has increased at a faster pace than [forecast by the MNB] in March. In addition, the [forint] has depreciated. Thus, combined with our expectations that external growth conditions will stabilize and improve, we think the MNB is likely to introduce further moderate tightening in the quarter ahead, which in our view would be consistent with the MNB’s emphasis on data-dependent policymaking. We forecast the first official rate increase in [Q1 2020].”

Policymakers will meet again on 15 May.

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