The projection for 2016 CPI was lowered to 2.4% from 2.6% in the previous report published in March. The MNB left its projection for 2016 GDP growth unchanged at 2.5%. The full Inflation Report will be published tomorrow. In a statement on the report, the MNBʼs rate-setting Monetary Council said inflation data from recent months were slightly higher than those in March, mainly reflecting higher-than-expected fuel prices, but underlying inflation is still moderate.
The low inflation environment and the improvement in the labor market will contribute to household real income growth, which in turn is expected to strengthen household consumption, the Council said. Domestic demand is likely to remain the main driver of growth and rising exports reflecting strengthening growth in Hungaryʼs export markets are also expected to support domestic economic growth, it added.
The conversion of foreign currency loans will reduce the household sectorʼs vulnerability, which may facilitate the gradual easing of consumer caution. The Funding for Growth Scheme also supports private sector investment, according to the Council. Household investment activity is expected to strengthen due to the pick-up in the housing market and the extension of the housing subsidy system.
The economyʼs external vulnerability continues to decrease as external financing capacity is expected to remain robust, exceeding 9% of GDP in 2015. Net exports are set to rise further, reflecting the probable improvement in external demand and the positive impact of the decline in oil prices on terms of trade. The Monetary Council considered three alternative scenarios around the baseline projection which might significantly impact monetary policy.
In one alternative scenario, a rise in yields in developed markets could lead to an increase in the risk premium of developing markets, allowing the inflation target to be achieved only with tighter monetary policy than assumed in the baseline projection.
In another, mounting geopolitical tensions could involve a protracted decline in external demand and a sudden increase in the risk premium, requiring tighter monetary policy. In the third alternative scenario, a persistently low cost environment and increasing second-round effects could lead to lower inflation and stronger economic growth, possibly justifying looser monetary conditions.
Producing journalism that is worthy of the name is a costly business. For over 30 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.
