MNB: Inflation 1.7% in 2013, 1.3% in ‘14

The bank put CPI for 2015 at 2.8%.

The MNB raised its projection for GDP growth this year to 1.1% from 0.7% in the previous report. It left the projection for growth in 2014 unchanged at 2.1% and forecast growth would accelerate to 2.4% in 2015.

In a statement on the report also published on Tuesday, the MNB’s rate-setting Monetary Council said weak domestic demand and loose labor market conditions had had a “strong disciplinary effect” on companies’ price and wage decisions. The Council acknowledged that temporary effects such as government-mandated reductions in household utility prices had contributed strongly to the reduction in inflation, but said underlying developments “point to continued moderate inflationary pressure even in the medium term” supported by low inflation on external markets and a gradual fall in inflation expectations.

Although the negative output gap could close at the end of the forecast horizon, household consumption is likely to strengthen “only gradually,” the Council said. The low inflation environment could help the MNB’s inflation target to better anchor the nominal path of the economy, it added.

The Council said it considered several alternative scenarios to the baseline projection in the report: a lower inflation environment that would allow “persistently more accommodative monetary policy conditions”; a potential increase in risk aversion because of external developments that could lead to a tighter policy stance; and a stronger pickup in growth potential on the back of increased corporate lending supported by the MNB’s Funding for Growth scheme, which “does not imply a markedly different policy response from that assumed in the baseline projection.”