The Monetary Council of the National Bank of Hungary (MNB) decided on Tuesday to keep the inflation target unchanged at 3% under a review of the target due every three years, the bank said.
The Monetary Council will strive to bring inflation in line with the 3% target which could be reduced in the middle term, the statement on the decision said.
Increasing the inflation target was not discussed at all by the Council, but the possibility of decreasing it was raised at the meeting, MNB governor András Simor said in response to a journalist question at a press conference held after Tuesday's Monetary Council meeting. The question referred to earlier government statements on increasing the target.
There are arguments for reducing the target, Simor said, noting the lower targets in other member countries or the eventual lower rate needed as Hungary accesses the eurozone.
"But the Council finally decided it would be worth strengthen the credibility of monetary policy first (before reducing the target)", he said. That could also help bringing down inflation at more favorable real economic costs, Simor added, noting the possibility of an early reduction of the target if circumstances allow.
The Council has kept in mind Hungary\'s future accession to the eurozone when fixing the target, the statement said. The experience of peripheral countries has revealed risks related to the eurozone accession which could be lessened if the larger part of the nominal convergence was completed before the actual adoption of the euro.
The government's economic policy could help to reach and maintain price stability – the main goals of the central bank under the respective legislation – through reducing the budget deficit and debt, and through setting taxes and regulated prices in line with the 3% inflation target, the council said. Such measures help reduce the real economy costs of meeting the central bank\'s main goals.
The Council added that price stability does not mean nearly zero inflation, noting the risks of excessively low inflation.
The next review of the inflation target will happen in at most three years from now or when Hungary enters the ERM II exchange rate mechanism, the anteroom of the eurozone.
The target could be reduced earlier if the Council decided that this could support the Hungarian economy\'s convergence to the eurozone.
The MNB has been implementing an inflation targeting monetary regime since the summer of 2001.