Press release on the Monetary Council meeting of 22 March 2016 | MNB.hu
Central bank: mnb | Type: statement | Date: 2016-03-22

22 March 2016
At its meeting on 22 March 2016, the Monetary Council
reviewed the latest economic and financial developments and voted to reduce the
central bank base rate by 15 basis points from 1.35% to 1.20%, with effect from
23 March 2016.
In the Council’s
assessment, Hungarian economic growth continues. A degree of unused capacity
remains in the economy, and therefore the domestic real economic environment
continues to have a disinflationary impact. The path of inflation has shifted
downwards significantly relative to the December projection and remains
substantially below the Bank’s target.
inflation rate and core inflation both
decreased in February 2016 relative to the previous month.
The Bank’s measures of underlying inflation continued
to indicate moderate inflationary pressures in the economy.
Core inflation rises only
gradually as a result
of rising household consumption and moderate wage growth. T
he persistently low global inflationary environment
contains the increase in the domestic consumer price inflation. Inflation
expectations fell further and are at historically low levels. Inflation remains
below the 3 per cent target over the forecast period, and only approaches it in
the first half of 2018.
The Hungarian economy grew dynamically again in the
fourth quarter of 2015 following subdued growth in the previous quarter. Over
the year as a whole, the economy grew at a rate close to 3 per cent. Based on
detailed data, the expansion in services and industry continued to be the main driver
of economic growth. The performance of industry weakened in January. According
to January data, retail sales grew less strongly than in previous months. The
employment rate remained broadly unchanged and the unemployment rate fell again
in January. The deceleration in funding inflows from the EU leads to a slowdown
in growth, but the Bank’s and the Government’s policy measures continue to
contribute to economic recovery. In the Council’s assessment, economic growth
of around 3 per cent can be maintained by the Bank’s Growth Supporting
Programme and the steps taken by the Government to encourage home construction
and to facilitate the faster draw-down of EU transfers. Rising incomes, the
pick-up in lending and the gradual decline in precautionary motives contribute
to a substantial expansion in consumption, which in turn provides a
considerable support for economic growth.
Sentiment in global financial markets has improved
slightly overall since the Council’s latest policy decision, mainly drivenby
expectations and announcements related to the monetary policy stance of the
world’s leading central banks and news coming from oil markets. In March,
monetary conditions in the euro area were eased further by the European Central
Bank. The forint
exchange rate has weakened and long-
term government bond yields have fallen since the
previous policy decision. Hungary’s strong external financing capacity and the
resulting decline in external debt are contributing to the sustained reduction
in the vulnerability of the economy. In the Council’s assessment, a watchful
approach to monetary policy is still warranted due to uncertainty in the global
financial environment.
Market yield expectations were in line with the Bank’s
forward guidance. The unconventional, targeted monetary policy instruments
introduced by the Bank also facilitate a decline in long-term yields and,
consequently, an easing in monetary conditions. Forward-looking money market
real interest rates are in negative territory and are declining even further as
inflation rises.
In the Council’s assessment, there continues to be a degree of unused
capacity in the economy and inflationary pressures remain moderate for an
extended period. The real economy has a disinflationary impact over the policy
horizon. Based on the March Inflation Report projection, the time when the
inflation target is met has lengthened as an effect of the persistently and
substantially lower cost environment than earlier expected.
Long-term government securities yields fell after the announcement of
Phase 3 of the Self-Financing Programme and are likely to continue declining as
the announced measures are implemented. However, persistently
cost-side inflationary pressure, the slowdown in global growth and the
historically low level of inflation expectations have heightened the risk of
second-round effects which result in below-target inflation over a sustained
period. In view of the
March Inflation Report projection, the Council assesses that the
sustainable achievement of the inflation target has made it necessary to
implement a comprehensive easing of monetary conditions. This consists of the
reduction in the policy rate and the asymmetric narrowing of the central bank
interest rate corridor. As a result, the central bank base rate has been
reduced by 15 basis points to 1.20 per cent, the overnight deposit rate to -0.05
per cent, i.e. into negative territory, and the overnight lending rate to 1.45
per cent. The Monetary Council remains ready to use every instrument at its
disposal to contain second-round inflationary effects. Interest rate cuts will
continue as long as monetary conditions become consistent with the sustainable
achievement of the inflation target.
In addition to the central bank
base rate, the Monetary Council will henceforth also decide on the current
levels of the overnight deposit and lending rates, that is the width of the
interest rate corridor at its interest rate-setting meetings.
The abridged minutes of today’s Council meeting will
be published at 2 p.m. on 13 April 2016.
MAGYAR NEMZETI