No Change in Hungary’s Monetary Policy

March 28, 2011

Magyar Nemzeti Bank officials decided to keep their base rate at 6.00%.  This is the same action as taken at the February meeting and follows three consecutive hikes of 25 basis points in November, December and January. Hungary was hit by several cost-push shocks, which have lifted CPI inflation to 4.0% or above since October.  Inflation will stay well above the 3.0% target all 2011 and only settle back to 3% around late 2012.  Along with above-target inflation, Hungary has weak growth.  GDP expanded just 0.8% annualized in 4Q10 and by 2.0% from 4Q09.  While a gradual strengthening of activity is envisaged, significant slack should persist for some time.  A statement released today indicates that officials think the three hikes of rates should restrain the pass-through of cost-push pressures via second-order price effects, but they intend to monitor the situation and tighten credit further if that expectation proves overly optimistic.  Minutes of today’s meeting will be published April 6.  At 6.00%, the base rate remains far beneath the pre-recession peak of 11.50%.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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