MNB policymakers agree close monitoring of commodity prices

"Council members agreed that the effect of the increase in commodity prices on underlying inflation needed to be closely monitored, and incoming data should be assessed on the basis of more persistent inflationary effects," the minutes say.

Several members stressed that the recent rise in inflation could be attributed mainly to volatile factors, state news agency MTI reported. Some members also noted that oil prices had become more volatile because of geopolitical factors.

Consumer prices in Hungary rose 3.6% year-on-year in September, accelerating from a 3.4% increase in the previous month and lifting CPI well over the central bankʼs 3.0% mid-term "price stability" target, noted MTI. October inflation data are released today.

The minutes show the Council voted unanimously to keep the central bankʼs key rate on hold at 0.90% at the meeting on October 16. The Council has left the base rate on hold since signalling an end to an easing cycle at a policy meeting in the spring of 2016.

However, the Council has made use of "unconventional, targeted" instruments to ease monetary policy further, saying at its previous policy meeting in September that it was "prepared for the gradual and cautious normalization of monetary policy, which will start depending on the outlook for inflation," and announcing changes to its policy instruments.

These included decisions to phase out the three-month deposits, previously the central bank’s main sterilization instrument, and to wind up tenders of monetary policy interest rate swaps (MIRS), as well as a mortgage bond purchase program.

The MNB also decided to launch a HUF 1 trillion program, dubbed "FGS fix," to "raise the proportion of long-term, fixed-rate lending to SMEs to an adequate level" early in 2019.