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Central bank reiterates stance on loose monetary conditions

The Monetary Council of the National Bank of Hungary (MNB) reiterated its stance on keeping the base rate unchanged and monetary conditions loose, according to the condensed minutes of its monthly policy meeting in March, released on Wednesday.

"Members agreed that maintaining the current policy stance for a sustained period was in line with the March Inflation Report projection and the expectations of analysts and market participants," read the minutes, cited by national news agency MTI.

"In the Council’s assessment, maintaining the base rate and the loose monetary conditions at both the short and long ends [of the yield curve] for an extended period was necessary to achieve the inflation target in a sustainable manner," the minutes add.

At the policy meeting on March 27, policy makers voted unanimously to keep the central bankʼs key three-month deposit rate unchanged at 0.90% and to continue the central bankʼs mortgage bond purchases and its monetary interest rate swap (MIRS) facility "continuously and for a prolonged period."

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 rate-setters have made use of "unconventional, targeted" instruments to ease monetary policy further, MTI recalled.

Members noted that the impact of dynamic wage growth on inflation "continued to be moderate", but some said it was of "key importance" to closely monitor developments in the labor market and in services price inflation.

Other members added that the impact of higher wage costs on inflation was muted because of payroll tax reductions and VAT rate cuts earlier in the year, and that inflation expectations are stabilizing at "historically low levels."

After the March policy meeting, the MNB said it would stand by its quarterly inflation forecast for the full year, in spite of raising its projection for GDP growth.