Hungarian central bank keeps base rate on hold at 1.35 pc
Budapest, September 22 (MTI) – Hungarian rate-setters on Tuesday kept the central bank’s key rate on hold at 1.35 percent.
The decision was widely expected after the rate-setters clearly signalled an end to an easing cycle at their monthly policy meeting two months ago. Central bank governor Gyorgy Matolcsy said at the time that the earlier series of 15 basis point cuts carried out for five consecutive months would soon come to an end.
In a statement released after the meeting, the Monetary Council suggested loose monetary conditions could be maintained longer than expected in light of the central bank’s updated projections that put CPI lower than earlier forecast in both 2015 and 2016.
“In view of the projection in the September Inflation Report, the Monetary Council assesses that the current level of the base rate and maintaining loose monetary conditions for an extended period, over a longer horizon than expected, are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy.”
“In the Council’s assessment, there continues to be a degree of unused capacity in the economy and inflationary pressures are likely to remain moderate. The negative output gap is expected to close only gradually over the policy horizon,” it added.
The central bank also lowered its inflation forecast for 2015 to zero from 0.3 percent in its fresh quarterly Inflation Report. The projection for 2016 CPI was lowered to 1.9 percent from 2.4 percent. The NBH also lowered its forecast for GDP growth this year by 0.1 percentage point to 3.2 percent. It projection for 2016 GDP growth unchanged at 2.5 percent.
Inflation is likely to be well below the inflation target over the short term, the bank said.
The underlying trends were overall in line with the projection in the June issue of the report, the difference between the projection and the actual outcome for inflation was mainly caused by lower fuel prices.
Inflation is likely to accelerate towards the end of 2015. Core inflation should pick up gradually as costs increase as a result of an expansion in domestic demand and rises in wages.
Domestic demand is likely to make an increasing contribution to economic growth. Rising exports, improvement in the labour market, low inflation environment and the conversion of FX loans also support growth. However, a slowdown is expected in early 2016 as EU transfers decline, the report said.
Photo: Daily News Hungary
Source: http://mtva.hu/hu/hungary-matters