MNB keeps base rate on hold; lifts inflation, GDP forecasts


Photo by Adriana Iacob/

The Monetary Council of the National Bank of Hungary (MNB) decided to keep the base rate at 0.90% at its monthly policy meeting Tuesday. The central bank also said in a preliminary summary of its quarterly Inflation Report due Thursday that both inflation and GDP growth could be higher in 2019 than earlier forecast.

In a statement released after the meeting, the Monetary Council said risks to inflation had become asymmetric as downside risks strengthened further because of the slowdown in Europe and a loosening of monetary policy by big central banks.

"In the Monetary Councilʼs assessment, previously symmetric risks to inflation became asymmetric in the last quarter. The downside inflation risks have strengthened further, reflecting the effects of the slowdown in European economic activity. Due to the measures taken by global leading central banks, the external monetary policy environment has become looser," according to the statement.

Because of the base effect of a fall in fuel prices last year, headline inflation is "likely to rise again until the end of 2019, and then to stabilize at the level of the 3% inflation target following a gradual decline," the Council added.

Core inflation excluding indirect tax effects - which state news wire MTI noted is a bellwether indicator of underlying inflation that rate-setters follow closely - is expected to "rise slightly" in the coming months, "before decreasing to 3% along a lower than previously expected path, due to external disinflationary effects," the Council added.

Also at the meeting Tuesday, rate-setters maintained the central bank O/N deposit rate at -0.05%.

In addition, the Council decided to set the amount of liquidity to be crowded out from central bank instruments in the fourth quarter at "at least" HUF 300-500 billion, up from HUF 200-400 bln in the previous quarter. The rate-setters take the level into account when setting the stock of MNB swap instruments, one of the central bankʼs main policy tools, MTI noted.

"The [MNB] changes the stock of the FX swap instrument in a flexible manner to ensure that the interest rate transmission changes in line with the decisions by the Monetary Council, and the volatility of interbank rates remains at low levels," the Council noted.

2019 inflation, GDP growth forecasts raised

Also on Tuesday, the MNB said in a preliminary release of its main forecasts from its quarterly Inflation Report, due to be published on Thursday, that inflation and GDP growth could be higher in 2019 than its earlier forecasts.

The central bank has raised its forecast for inflation this year to 3.3%, up by 0.1 of a percentage point compared to the estimate it gave in the June edition of its Inflation Report.

The inflation forecasts for 2020 and 2021 have been left unchanged, at 3.4% and 3.3%, respectively.

The central bank has also raised its forecast for economic growth for this year by 0.2 of a percentage point to 4.5%.

Economic growth in 2020 is expected at 3.3%, and to remain at 3.3% in 2021, both unchanged compared to the MNBʼs earlier predictions.   

A fan chart published on Tuesday indicates that the MNB expects CPI above the 3% mid-term target for the foreseeable future, before again nearing the 3% target by early 2022. It puts the inflation target in a +/-1% tolerance band. 

The official government forecasts for Hungaryʼs GDP growth are 4.0% for 2019, 4.0% for 2020, and 4.1% in 2021, based on the April update of the governmentʼs Convergence Program, recalled MTI. In September, Minister of Finance Mihály Varga said after the release of Q2 data showing higher than expected growth that full-year GDP growth could reach 4.3-4.4% in 2019.

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