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MNB: Present base rate necessary to meet inflation target

Analysis

Consumer price inflation in the third quarter confirms that it may be necessary to keep the base rate at the current level until the end of 2015 to achieve the inflation target, Ádám Balog, deputy governor of the National Bank of Hungary, said today.

Balog said the impact of lower-than-expected CPI in September -- consumer prices fell by 0.5% year-on-year -- was difficult to gauge at present, but added that third-quarter CPI, at negative 0.1%, was just slightly less than expected. The events and data released in the past several weeks have not really influenced the room for monetary policy maneuver, he said.

London analysts on Monday projected the central bank would cut rates further on the September CPI, even though it said in July that the easing cycle had wound up.

Commerzbank analysts said the September CPI was a "strong signal" that the National Bank of Hungary would change its monetary policy. The analysts projected the central bank base rate would be cut from 2.10% to 1.70% by the first quarter of 2015.

The National Bank of Hungary (MNB) cut the base rate by a combined 490bp between August 2012 and July 2014 and helped the economy exit the crisis using several unconventional tools without jeopardizing the inflation target, Balog told Hungarian news agency MTI.

After a policy meeting in September, MNB rate-setters said "inflation was likely to move into line with the target over the medium term" with current monetary conditions maintained.

 "If the assumptions underlying the bank's projection held, achieving the medium-term inflation target pointed in the direction of maintaining current loose monetary conditions for an extended period," the Council said in the minutes of its meeting.

Balog said the impact of lower-than-expected CPI in September -- consumer prices fell by 0.5% year-on-year -- was difficult to gauge at present, but added that third-quarter CPI, at negative 0.1%, was just slightly less than expected.

The central bank will reassess the macroeconomic outlook in its next quarterly inflation report, due out in December, Balog said. He noted that the bank did not have an exchange rate target and would refrain from directly influencing the forint's exchange rate.

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