The National Bank of Hungary's Monetary Council decided to raise the central bank's key rate by 25bp to 6.00% at a meeting on Monday. The decision was in line with analysts' expectations.
The rise was the third one in a row after the MNB's rate-setters started a tightening cycle in November.
MNB governor András Simor said at a press conference after the meeting that three proposals were made by Council members: one for a 25bp rise, one to keep rates on hold and another for a 25bp cut. The vote was “very close”, he added.
December inflation data came as no surprise to the bank's analysts, Simor said.
Year-on-year CPI accelerated to 4.7% in December, the Central Statistical Office said on January 14. Analysts had estimated prices rose 4.4-4.5% in the month.
Simor said the biggest dispute at the meeting on Monday was over assessing inflationary expectations. Hungary's risk assessment remains unchanged and played no role in the decision, he added.
Simor also said planned changes to the makeup of the Council had no effect on the decision to raise rates.
In a statement published after the meeting, the Council said costs shocks in the coming quarters, such as higher prices for unprocessed foods and fuel, could keep inflation over the bank's and government's joint 3% mid-term target for “price stability”. The passing on, in part, of extraordinary taxes on the retail, energy and telecommunications sectors could intensify this effect, the statement added.
The “biggest risk” to the outlook for mid-term inflation, in the Council's view, is that inflationary expectations could fail to become anchored because the inflation rate continues to remain over the target; thus costs shocks could produce second-round inflation, the rate-setters said.
The Council acknowledged that external demand remained the engine of economic growth in Hungary and that domestic demand was expected to catch up only slowly, but members noted that changes to the personal income tax and improving employment could give household consumption a boost. Low core inflation and restrained wage increases in the private sector confirm that weak domestic demand and high unemployment continue to keep pricing and wage decisions under control, the Council added.
The Council said it will decide whether further rate rises are necessary in the coming months based on an assessment of inflationary risks.
Simor said members of the Council are “open” regarding a decision at the next rate-setting meeting in February.
The condensed minutes of the meeting will be published at 2pm on February 9. (MTI-Econews)