CPI to stabilize from mid-2022 on 'proactive' monetary policy

MNB

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The National Bank of Hungary (MNB) said inflation will stabilize around the 3% central bank target from mid-2022 as the result of "proactive" monetary policy in its latest quarterly Inflation Report released on Thursday.

MNB said CPI - which spiked at an annualized 5.1% in April and May, the highest level in years - was "in line with our earlier expectations in recent months"; however, it acknowledged that inflation is "declining more slowly than previously expected".

The central bank said medium-term inflation prospects have risen as buoyant demand increases companies' room for maneuver to pass on increases in wage, transport, and raw material costs to consumers.

It projected CPI will fall to "around 4%" from July and remain in the upper range of the NBH's 2%-4% tolerance band for the rest of the year, before stabilizing around the 3% target from the middle of 2022 "due to proactive monetary policy measures".

MNB puts core inflation excluding indirect taxes - a bellwether indicator of underlying inflation - at 3.1% in both 2021 and 2022, and at 3% in 2023.

"The upside risks to the inflation outlook have generally strengthened, and it is of paramount importance to monitor and avoid second-round effects," MNB said in the report.

The bank's Monetary Council started a tightening cycle at a monthly policy meeting on Tuesday, raising the central bank's base rate by 3 0bp to 0.90%. Policymakers said they would assess the need to further tighten monetary conditions "in a data-driven manner" on a monthly basis "until the outlook for inflation stabilizes around the central bank target and inflation risks become evenly balanced on the horizon of monetary policy".

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