Press release on the Monetary Council meeting of 23 February 2016 | MNB.hu
Central bank: mnb | Type: statement | Date: 2016-02-23

23 February 2016
At its meeting on 23 February 2016, the Monetary Council reviewed the
latest economic and financial developments and voted to leave the central bank
base rate unchanged at 1.35%.
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. Inflation remains substantially below the Bank’s target.
inflation rate was unchanged and core
inflation has remained broadly the same in January 2016.
The Bank’s measures of underlying inflation continued
to indicate moderate inflationary pressures in the economy.
may be lower over the short term than earlier expected, reflecting the effect
of low oil prices.
Core inflation is likely to
gradually as a result of an expansion in household consumption and an
acceleration in wage growth, but
persistently low global inflationary environment contains the increase in the
domestic consumer price index. Inflation expectations fell to a historic low.
Inflation is expected to remain below the 3 per cent target over the forecast
period, and is only likely to approach it by the end of the forecast horizon.
The Hungarian economy grew dynamically again in the fourth quarter of
2015 following a subdued pace in the previous quarter. By this, the economy
showed a growth rate of close to 3 per cent in 2015. Based on monthly
production indicators, robust growth was supported by the performance of
industry and the expansion in retail sales. Industry’s value added may have
risen again in the fourth quarter; the short-term prospects of domestic
industry are strong. Based on data for December,
sales growth was stable, as in previous months, with
the volume of sales increasing across a wide range of products. Employment
increased slightly and unemployment continued to decline.
Slower growth
in emerging markets and the deceleration in funding from the EU will lead to a
slowdown in growth in the first half of this year. A recovery is expected from
the second half of 2016, mainly reflecting the improving economic performance
of Hungary’s export markets as well as the Bank’s and the Government’s policy
measures. In the Council’s assessment, the Bank’s Growth Supporting Programme as
well as the steps taken by the Government to encourage home building and to
help the fast draw-down on EU transfers are necessary to maintain growth of
around 3 per cent. In addition to these factors, rising household consumption
is likely to support the economic expansion in the coming years.
Sentiment in global financial markets has deteriorated
slightly since the Council’s latest policy decision, mainly driven by concerns
about the outlook for growth, the monetary policy stance of the world’s leading
central banks and news coming from oil markets. Equity indices in developed and
Asian countries fell sharply, reflecting uncertainties about future developments
in oil markets and as an effect of some weaker-than-expected macroeconomic
Domestic financial markets remained stable even in the deteriorating
investor environment. The forint exchange rate has been broadly unchanged and
term government bond yields have overall
been lower in the period since the previous policy decision. Hungary’s
persistently 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 cautious 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
that the base rate would be held constant over an extended period. The
unconventional, targeted monetary policy instruments introduced by the Bank
also facilitate a decline in long-term yields and, consequently, a loosening 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, the reduction in unused capacity is
stopping temporarily as economic growth slows in the first half of 2016. The
negative output gap will close only at the end of the policy horizon as a
result of the re-acceleration of growth. Inflationary pressures remain moderate
over a sustained period. Based on available information, the current level of
the base rate and maintaining loose monetary conditions for an extended period,
over the entire forecast horizon, are consistent with the medium-term
achievement of the inflation target and a corresponding degree of support to
the economy.
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. The Monetary Council constantly
monitors whether the resulting looser monetary conditions ensure the
sustainable achievement of the inflation target
. In this context,
the Council closely examines developments in the foreign monetary environment,
particularly the measures of the European Central Bank. The Monetary Council may
ease monetary conditions further in view of the March Inflation Report.
The abridged minutes of today’s Council meeting will be published at 2
p.m. on 9 March 2016.
Monetary Council