Hungary’s Monetary Policy Left Unchanged

March 27, 2012

By majority vote, the Monetary Council of Magyar Nemzeti Bank retained the base rate of 7.0%, its level since a 50-basis point increase in December.  That hike culminated a 5-move, 175-bp tightening begun in November 2010.  The freeze on policy has occurred despite a greater-than-anticipated acceleration of on-year CPI inflation in Hungary from 3.9% for full-2011 to 5.5% in January and 5.9% in February.  Price strains include higher value added taxes, excise duties, oil prices and the lagged effect of forint depreciation between mid-2011 and November.  The central bank’s inflation target is a range of 2-4%.

Officials nonetheless feel it would be inappropriate to tighten the monetary stance at this time.  According to a released statement today, inflation is likely to fall back to 3.0% in 2013 as a result of anemic economic activity that will prevent the temporary shocks now being felt on prices from spawning second-order pressure on core inflation.  GDP is expected to stagnate in 2012 and to expand only 1.5% next year and thus will lie below the long-term trend throughout the forecast horizon.

During the Great Recession, the base rate was slashed 14 times from 11.5% prior to November 2008 to 5.25% after April 2010.  The next interest rate announcement is scheduled for April 24.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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