Budapest, November 26 (MTI) – Hungary’s central bank may cut its economic growth outlook sharply next month, and any easing it adopts in response would probably use non-conventional policy tools, National Bank of Hungary rate-setter Gyula Pleschinger said in an interview with Reuters on Thursday.
“There is a strong chance that our December inflation forecast will project a much lower growth outlook,” said Pleschinger.
In September’s inflation report NBH forecast growth would slow to 2.5 percent in 2016 from 3.2 percent expected this year, but later third-quarter growth came in at just 2.3 percent, missing the market’s and the central bank’s expectations.
“In theory, it is possible that the output gap (between actual and potential economic growth) will close later than at the end of 2017,” as was expected in the September inflation report, Pleschinger said, adding that a clearer picture would emerge in coming weeks.
The central bank will hold its last policy meeting of the year on Dec. 15. Its Managing Director Barnabas Virag told Reuters on Wednesday that the bank could “fine-tune” its monetary easing toolkit next month to counter downward risks to inflation and growth.
“If it is indeed the case that there is room for further easing, then there is a good chance that we will look at our targeted non-conventional tools,” Pleschinger said.
Pleschinger said the central bank had no exchange rate target or specific intent to weaken the forint, and that any impact from currency swings on inflation was marginal, through prices of imported goods.
“With regard to imported inflation, a weaker currency can be beneficial. However… exchange rate movements are no longer so significant,” Pleschinger said. “We have …tools, be it interest rates, or targeted monetary policy tools, that are a lot more effective in ensuring we meet our inflation target.”
Pleschinger said there was no pressure to incentivise lending by cutting the overnight deposit rate, currently at 0.1 percent, into negative territory. “We aim to get the debt yield curve flatter and to bring down longer yields, which can have a bigger impact on the lending channel so that market lending becomes a bit easier,” he said.