Magyar Nemzeti Bank Still in Pause Bode But…

February 24, 2015

During the two years through last July, Hungary’s central bank policy rate was lowered by 490 basis points to the current level of 2.10%.  Seven months have now passed since the last policy modification.  Today’s released policy statement, however, puts markets on notice to the possibility of a further easing of the stance as soon as next month: “Based on data available since the latest policy decision, there has been a further shift towards the alternative scenario implying looser monetary policy published in the December 2014 Inflation Report, and the probability of second-round effects taking hold in the wake of disinflationary trends in the economy as well as a change in inflation expectations has increased….. If the assumptions underlying the Bank’s projections hold, achieving the inflation target points in the direction of loose monetary conditions for an extended period. The Monetary Council will consider the need for possible further easing of monetary conditions in view of the March Inflation Report projection, after a comprehensive assessment of the medium-term outlook for inflation.”

On-year CPI inflation slipped below zero last September and stood at -1.4% in January after the big drop in global oil import costs.  The forint has risen against the euro this month.

The statement cites the low market services price index in observing a rising chance of disinflationary second-order effects, and only a gradual reduction of Hungary’s output gap is anticipated.  “A cautious approach to monetary policy is warranted due to uncertainty about future developments in the global financial environment.”  However, officials feel that the forint’s vulnerability has diminished: “Hungary’s persistently high external financing capacity and the resulting decline in external debt have contributed to the reduction in its vulnerability.”

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.