Achieving Deficit Targets 'Crucial' - Rate-setters

MNB

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Members of the Monetary Council of the National Bank of Hungary (MNB) agreed that meeting deficit targets was a key factor affecting Hungary's risk perceptions at a monthly policy meeting in April, according to a report by state news wire MTI.

"Decision makers were unanimous in their view that of the most significant factors affecting Hungary's risk perceptions, the achievement of the set deficit targets in a credible manner and the improvement in the primary balance to reach near equilibrium levels were crucial," the minutes from the meeting released on Wednesday show.

The policymakers said developments in the external balance were "the other key factor" of risk perception.

Reviewing "key aspects" of interest rate policy for the coming months, the rate-setters said inflation was expected to rise temporarily in the middle of the year and to fluctuate above the upper bound of the 3pc +/-1pp tolerance band in the second half of the year, and they agreed that tight monetary policy had to be maintained in order to reach the inflation target in 2025 in a sustainable manner.

Council members also pointed to the effect of the international monetary policy environment on room for interest rate policy maneuver in Hungary.

They said financial market stability was "key" in terms of the strengthening of confidence in Hungarian financial instruments and the anchoring of inflation expectations.

The policymakers voted unanimously at the meeting on April 23 to reduce the base rate by 50 bp to 7.75%, slowing the pace of easing.

In the "new phase" of monetary policy started in April, further reduction in the base rate will be decided on "in a data-driven manner, based on incoming data, the outlook for inflation and developments in the risk environment, proceeding from month to month at a slower pace than in the phase which had ended in March", according to the minutes.

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