MNB projects higher growth, stands by inflation forecasts

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The National Bank of Hungary (MNB) on Tuesday said it is standing by its inflation forecast for this year in spite of making a higher projection for economic growth.  The central bank released the main forecasts in its quarterly Inflation Report after a policy meeting by the rate-setting Monetary Council.

In a statement released on Tuesday, MNB policy makers said the 3.0% mid-term inflation target is expected to be achieved "by the middle of 2019," as they said in December.

The central bank raised its CPI number for 2017 to 2.4% in its quarterly Inflation Report, up from 2.3% in the previous report published in December. It did not change the 2.5% inflation forecast for 2018, the 2.9% forecast for 2019, or the 3.0% forecast for 2020, reported state news agency MTI.  

The MNB said GDP growth was 4.0% last year, which is 0.1 of a percentage point higher than its December estimate. The central bank is predicting 4.2% GDP growth this year, up by 0.3 of a percentage point compared to its earlier forecast.

The 3.3% growth expected for 2019 is also 0.1 of a percentage point higher than the December projection. For 2020, the MNB is expecting GDP growth to slow to 2.7%, in line with its earlier prediction. 

The central bank will publish its full Inflation Report on Thursday.   

Meanwhile, the Ministry for National Economy puts average annual inflation at 2.7% in 2018, 3.0% in 2019, and 3.0% in 2020, according to an updated forecast published in December.

In its more bullish projections, the ministry projects GDP growth of 4.3% this year, 3.8% next year, and 3.7% in 2020.

Monetary Council leaves base rate on hold

Also Tuesday, MTI reported that the MNBʼs Monetary Council decided to keep the central bankʼs key rate on hold at 0.90%. 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, rate-setters have made use of "unconventional, targeted" instruments to ease monetary policy further.

The Council also left the O/N central bank deposit rate at -0.15% and the O/N collateralized loan rate at 0.90% at the meeting Tuesday.

In a statement released after the meeting, the Council said that "maintaining the base rate and the loose monetary conditions at both the short and long ends for an extended period is necessary to achieve the inflation target in a sustainable manner," echoing the policy stand voiced in previous months.

"The Council will closely monitor developments in monetary conditions and will ensure the persistence of loose monetary conditions over a prolonged period by using the extended set of monetary policy instruments," the statement added.

Commenting on the newest of these instruments intended to flatten the yield curve, the Council said the MNB would continue mortgage bond purchases and its monetary interest rate swap (MIRS) facility as programs "continuously and for a prolonged period," calling them "an integral part of the set of monetary policy instruments."

Abridged minutes of the Councilʼs policy meeting on Tuesday will be published at 2 p.m. on April 11.

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