Magyar Nemzeti Bank Retains Loose Policy

March 28, 2017

Hungary’s monetary policy interest rate has been at 0.90% since a 15-basis point reduction in May 2016 and continues to be augmented by unconventional stimulus. A policy statement released today by the Monetary Council indicates a continuing intention to use these multiple means to secure the inflation target of 3% in a sustainable way by the first half of 2018. The domestic economy still has slack. Positive growth of 3-4% will absorb unused capacity but only gradually, and it will also trim the current account deficit. Hungary’s economy is less vulnerable to global financial market uncertainties due to its reduced foreign debt. Forward guidance at the end of the statement states:

If the assumptions underlying the Bank’s projections hold, maintaining the current level of the base rate and loose monetary conditions achieved through the change in monetary policy instruments for an extended period is consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy. If inflation remains persistently below the target, the Council will stand ready to ease monetary conditions further using unconventional, targeted instruments.

The central bank interest rate fell from 7.0% to 2.1% during the two years to July 2014. A further series of cuts in March-July 2015 reduced the rate to 1.35%, and three additional declines in March-May of last year took the rate below 1.0%.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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