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Rate-setters Point to Need for Maintaining Tight Monetary Policy

MNB

Photo by Adriana Iacob/Shutterstock.com

Members of the Monetary Council of the National Bank of Hungary (MNB) were in agreement on the need to keep monetary policy tight to achieve the mid-term inflation target at a monthly rate-setting meeting in May, according to a reprot by state news wire MTI.

"Council members agreed that restrictive monetary policy had to be maintained in order to reach the inflation target in 2025 in a sustainable manner," the minutes from the meeting released on Wednesday show.

The council voted unanimously at the meeting on May 21 to cut the central bank base rate by 50 bp to 7.25%.

The rate-setters noted that inflation would rise temporarily in the middle of the year and stressed that they would closely monitor developments in the prices of services.

They were in full agreement that achieving the general government deficit targets in a credible matter and developments in the external balance were "crucial" factors affecting Hungary's risk perceptions. They also said that preserving financial market stability remained "essential" in order to achieve price stability in a sustainable manner.

They acknowledged the effect of the international monetary policy environment on the room for rate policy maneuver in Hungary, particularly the persistently high-interest rate environment in the United States.

The policymakers said CPI might return to the central bank's 3pc +/-1pp tolerance band in a sustained manner from 2025. They pointed out that, after a period of high inflation, the decline in inflation expectations was a "prolonged process" and expectations had to be anchored to the inflation target again.

The council said decisions on any further reductions in the base rate would be taken in a "data-driven manner", based on incoming macroeconomic data, the outlook for inflation and developments in the risk environment.

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