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Inflation Expectations Set to Decline at 'Slow Pace' - Minutes

Analysis

Photo by T. Schneider / Shutterstock.com

National Bank of Hungary (MNB) rate-setters acknowledged an improvement in the short-term outlook for inflation, but noted that the projection for longer-term inflation remained unchanged, while inflation expectations were expected to fall "only at a slow pace", at a monthly policy meeting in June, according to a report by state news wire MTI.

The central bank's Monetary Council said that anchoring inflation expectations, along with preserving financial market stability and disciplined monetary policy, were "crucial" for CPI to return to the MNB target in the minutes of the meeting released on Wednesday.

The rate-setters said inflation would fluctuate "close to the upper bound" of the 3% +/-1 pp tolerance band in the coming months. The target is expected to be achieved, "in a sustainable manner", in 2025, they added.

The council said the developing economic recovery, historically high FX reserves, an improving current-account balance and a cautious approach to monetary policy pointed to an improvement in the country's risk perception. However, they also drew attention to global risks, particularly the effect of a persistently high external interest rate environment that reduced the room for monetary policy manoeuver, along with volatile sentiment on financial markets and heightened geopolitical tensions.

Several members stressed that achieving general government deficit targets "in a disciplined manner" was of "key importance" in terms of assessment of risks.

The policymakers agreed that forward guidance should be modified in June, signaling the start of "a new phase" in which the council would "assess incoming macroeconomic data, the outlook for inflation and developments in the risk environment from month to month" and take decisions on the base rate "in a cautious and data-driven manner".

The council voted unanimously to cut the central bank base rate by 25 bp to 7% at the meeting on June 18.

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