“Members stressed that the Council would closely monitor developments in core inflation and their effect on the inflation outlook in the coming months,” according to the minutes of the meeting, reported by state news agency MTI. “[Members] emphasized that in performing a detailed assessment and analysis of inflation developments it was important to identify temporary and persistent factors and to understand the effect these had on inflation expectations,” the minutes show.   

Consumer prices in Hungary rose 3.8% year-on-year in October, accelerating from a 3.6% increase in the previous month and lifting CPI well over the central bankʼs 3.0% mid-term “price stability” target. Core inflation, which excludes volatile food and fuel prices, was 2.6% in October.

Council members agreed that October inflation was lifted “mainly due to volatile items,” but acknowledged that measures of underlying inflation – a set of data compiled by the central bank that complements the main inflation figures – “had also picked up.”

The release of the MNBʼs next quarterly Inflation Report “might provide a guideline for decision-makers to assess the outlook for inflation comprehensively,” the minutes noted.

The main projections in the Inflation Report will be released after the Councilʼs next policy meeting on December 18. The report will be published in full on December 20.

Cautious normalization

The minutes also show the Council voted unanimously to keep the central bankʼs key rate on hold at 0.90% at the November policy meeting. The Council has left the base rate on hold since signalling an end to an easing cycle at a policy meeting in the spring of 2016. However, rate-setters have made use of “unconventional, targeted” instruments to ease monetary policy further.

At its policy meeting in September, the Council said it was “prepared for the gradual and cautious normalization of monetary policy, which will start depending on the outlook for inflation,” and announced changes to its policy instruments. These included decisions to phase out three-month deposits, earlier the central bankʼs main sterilization instrument, and to wind up tenders of monetary policy interest rate swaps (MIRS), as well as a mortgage bond purchase program.

In addition, the central bank decided to launch a HUF 1 trillion program early in 2019, dubbed “FGS fix,” to “raise the proportion of long-term, fixed-rate lending to SMEs to an adequate level.”