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Rate-setters agree that ʼpersistent changeʼ to inflation outlook key

The Monetary Council of the National Bank of Hungary (MNB) stressed that inflation would return to the tolerance band around the mid-term target in Q1 2020 and agreed that persistent change to the inflation outlook would determine the need for further measures at a monthly policy meeting in January, state news wire MTI reports.

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"Council Members were in full agreement that the necessity of further measures would be determined by the persistent change in the outlook for inflation, which would be monitored closely," the minutes of the rate-settersʼ monthly policy meeting late in January show.

As in its statement released after the policy meeting on January 28, the Council elaborated on the duration of the change to inflation outlook that could warrant policy steps with the inclusion of the word "persistent". In earlier communications, the Council had said only "future developments in the outlook for inflation" would be key to deciding the need for further policy measures.

Hungaryʼs 12-month consumer price index rose to 4.0pc in December, reaching the top edge of the +/- one percentage point tolerance band around the central bankʼs 3.0pc mid-term inflation target.

The Council members also acknowledged the impact the coronavirus outbreak could have on policy in the minutes.

"The emergence of the coronavirus was likely to increase uncertainty in the coming months, which could lead to a deterioration in global growth prospects again and an increase in risk aversion in emerging markets," The Council said.

"Against this backdrop, decision-makers were unanimous in arguing that a data-driven, cautious approach should be maintained in monetary policy decisions," according to the minutes.

The minutes show the Council voted unanimously to keep the central bank O/N deposit rate at -0.05% and the base rate at 0.90pc at the policy meeting. Kolos Kardkovács, an external member of the Council, was not present at the meeting.

The Council has kept the rates on hold since last spring but tweaked policy by adjusting the amount of liquidity to be crowded out from central bank instruments that pay the base rate on a quarterly basis.