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MNB pushes back projection for meeting “price stability” target

The National Bank of Hungary (MNB) said it expects consumer price inflation to fall to its 3.0% “price stability” target only in Q2 2011 in its fresh quarterly Inflation Report, compared to Q1 2011 in the previous report released in February.

The MNB projects Hungary's year-on-year CPI will decrease from 6.0% in Q1 2010 to 5.4% in Q2 and 3.8% in Q3, but rise to 4.1% in Q4 before dropping to 3.4% in Q1 2011. CPI is seen dropping to 3% in Q2 2011 and being 2.8-2.9% in each quarter through the end of 2012.

An upswing in domestic demand and higher imported inflation are likely to hinder a further decline in inflation in 2012, the bank said.

The MNB forecast average annual inflation of 4.9% in 2010, 3.0% in 2011 and 2.9% in 2012. The MNB raised the projections for 2010 and 2011 from 4.4% and 2.3%, respectively, in its February Inflation Report, citing an increase in energy prices because of the weaker euro. It gave a projection for 2012 for the first time.

Average annual inflation was 4.1% in 2009.

The bank put core inflation at 3.0% in 2010, 1.6% in 2011 and 2.5% in 2012. Core inflation was 4.2% in 2009.

The MNB projected Hungary's GDP would increase 0.9% in 2010, 3.2% in 2011 and 3.9% in 2012. In the February report, the MNB forecast an economic contraction of 0.2% for 2010. Hungary's GDP fell by 6.3% in 2009.

The outlook for growth and inflation in Hungary continues to be shaped by the pick-up in global economic activity and the slow recovery in domestic demand, the MNB said. Calculating with an April central bank base rate of 5.25% and forint/euro cross-rate of 265.4, the strong expansion of exports and faster re-stocking by companies may be able to offset the decline in domestic consumption in 2010, bringing the country out of recession, the MNB said. Output, however, is likely to remain under capacity over the entire forecast period, it added.

The bank put the general government deficit, calculated with EU methodology, at 4.3%-4.5% of GDP in 2010, 3.9% in 2010 and 2.9% in 2012. The MNB noted that the projections did not take into consideration any risk from debt assumptions.

The deficit was 4.0% in 2009.

The MNB projected Hungary would run current-account deficits of 0.6% of GDP in 2010, 0.9% in 2011 and 1.4% in 2012. Hungary had a current-account surplus of 0.2% of GDP in 2009.

The bank sees the country's external financing requirement slowly decreasing from 1.6% of GDP in 2009 to 1.4% in both 2010 and 2011, and to 0.8% in 2012.

The decline in private sector employment is seen slowing from 3.8% in 2009 to 1.6% in 2010, then growing 0.4% in 2011 and 0.9% in 2012.

Real household income is set to fall 2.9% in 2010, but grow 2.5% in 2011 and 3.0% in 2012. Real household income dropped 4.6% in 2009. (MTI - Econews)