Monetary Council assesses economic trends, prospects
Budapest, December 23 (MTI) – Hungary’s economic growth continued but a degree of unused capacity remained in the economy, and the domestic real economic environment continued to have a disinflationary impact, the Monetary Council of the National Bank of Hungary (NBH) concluded in its December 15 policy meeting.
According to the condensed minutes of the meeting released on Wednesday, the members unanimously voted to keep the central bank’s key rate on hold at 1.35 percent. The rate has remained unchanged since late July 2015.
The Council said that in the third quarter of 2015 the decline in agricultural production and the moderation in industrial production dynamics had been the main contributing factors to the deceleration of economic growth. Hungary’s GDP increased by 2.4 percent in annual terms, with a 0.6 percent growth recorded relative to the previous quarter, it said.
The Council is predicting that “deceleration in external demand and in funding from the EU would lead to a significant slowdown in growth in 2016”.
Inflation remained substantially below the NBH’s target. In November 2015, annual inflation was 0.5 percent, while core inflation was 1.4 percent and core inflation excluding indirect taxes stood at 1.2 percent.
The Council noted that “measures of underlying inflation continued to indicate moderate inflationary pressures”. Core inflation had been rising gradually as a result of an expansion in household consumption and an acceleration in wage growth, but the persistently low global inflationary environment contained the increase.
Inflation is expected to remain below the 3 percent target over the forecast period, and was only likely to approach it by the end of the forecast horizon.
In the Council’s assessment market yield expectations had been in line with the central bank’s forward guidance. The unconventional, targeted monetary policy instruments introduced by NBH also facilitated a decline in long-term yields and, consequently, a loosening in monetary conditions.
Members agreed that the inflation target could be achieved in a sustainable way by holding the base rate unchanged for an extended period and by using unconventional targeted monetary policy instruments.