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MNB’s macro view changes little, CIB Bank says

Analysis

The macroeconomic view of the Monetary Council of the National Bank of Hungary (MNB) has changed little, according to a CIB Bank Hungary flash sent to the Budapest Business Journal Tuesday after the rate-setting meeting of the council, which left the central bank’s key rate intact.

The council left the central bank’s main policy rate unchanged at 0.9% at its meeting yesterday, the decision matching the market consensus, while leaving O/N rates unchanged, including the depo (already in negative territory at -0.05%). The council also made a decision on a further quantitative restriction of the 3M depo facility, setting the limit at HUF 750 billion for the end of the first quarter of next year.

The official statement issued by the central bank Tuesday adds that the latter decision, consistent with the gradual steps taken so far, will mean the crowding out of at least HUF 100-200 bln additional liquidity from the deposit facility, the CIB flash notes.

“The MC aims to ensure that the limit imposed on the stock of three-month deposits exerts its expected easing effect efficiently. The limit is set quarterly. On the next occasion, a decision on its level at the end of the second quarter of 2017 will be made in March 2017,” the flash notes.

As far as the current macroeconomic view of the Hungarian central bank is concerned, “some degree of unused capacity has remained in the Hungarian economy, but looking ahead, the disinflationary impact of the domestic real economic environment is gradually dissipating,” the CIB flash notes. 

“Inflation rises over the forecast period and reaches the inflation target in the first half of 2018. Looking ahead, whole-economy wage growth is likely to rise further, as a result of continued strong demand for labor and the latest wage agreement,” CIB Bank says. In turn, this is expected to raise the core inflation of Hungary through an increase in household consumption, according to the flash.

“However, with persistently low global inflation and historically low inflation expectations, the consumer price index is expected to rise only gradually. In the current projection, inflation reaches the 3% level consistent with price stability in the first half of 2018,” CIB Bank adds.

Keeping its view unchanged, the council apparently also claims that “if the assumptions underlying the bank’s projections hold, maintaining the current level of the base rate for an extended period and the loosening of monetary conditions by the change in monetary policy instruments are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy,” according to the flash sent by CIB.

“In the council’s assessment, a watchful approach to monetary policy is still warranted due to uncertainty in the global financial environment. If subsequently warranted by the achievement of the inflation target, the council will stand ready to ease monetary conditions further using unconventional, targeted instruments,” the CIB analysis concludes.

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