MNB cuts inflation projection, projects GDP contraction for 2012

The projection is in the central bank's fresh quarterly Inflation Report to be published in full on Thursday.

The report projects inflation to fall to the 3% mid-term target by the end of 2013, Simor said.

The MNB cut its GDP projection for 2012 sharply, projecting a 0.8% contraction instead of 0.1% growth forecast in the March report.

The Bank raised its projection for CPI in 2013 to 3.5% from 3.0%. It lowered its forecast for 2013 GDP growth to 0.8% from 1.6%.

The government projects GDP growth to slow from 1.7% in 2011 to 0.1% this year before picking up to 1.6% in 2013. It forecasts average annual inflation to rise from 3.9% last year to 5.2% in 2012 before slowing to 4.2% in 2013.

The MNB sees a chance for some deficit overshoot in 2013 compared to the target [of 2.2% of GDP], but still expects the 2013 deficit ratio below the 3% limit, Simor said in response to MTI, assessing the budget bill before parliament. This would make 2013 the third year in a row with a deficit below 3%, he noted.

The macroeconomic projections in the report significantly differ from those on which the 2013 budget bill based, he said adding that the government's growth projections were overly optimistic. Keeping the general government deficit at target [of 2.2% of GDP] will require keeping the reserves planned in the budget unspent as well as some minor adjustment measures, the governor said. This would eliminate, however, the buffer for unexpected risks, he added. The MNB will publish a detailed analysis on the general government on July 5.