Press release on the Monetary Council meeting of 25 August 2015 | MNB.hu
Central bank: mnb | Type: statement | Date: 2015-08-25

25 August 2015
At its meeting on 25 August 2015, the Monetary Council
reviewed the latest economic and financial developments and voted to maintain
the central bank base rate 1.35%.
the Council’s assessment, Hungarian economic growth is likely to continue.
While the pace of economic activity is strengthening, output remains below
potential and the domestic real economic environment is expected to continue to
have a disinflationary impact, albeit to a diminishing extent. Despite the
pick-up in domestic demand, capacity utilisation is expected to improve only
gradually due to the protracted recovery in Hungary’s export markets. With
employment rising, unemployment continues to exceed its long-term level
determined by structural factors. Inflationary pressures are likely to remain
prices continued to show low dynamics in July, rising slightly compared with
the same period a year earlier. The incoming inflation data was consistent with
the projection in the June
Annual core inflation was unchanged relative to previous months.
The Bank’s measures of underlying inflation continue to indicate moderate
inflationary pressures in the economy, reflecting subdued imported inflation,
falling commodity prices and the degree of unused capacity in the economy.
Core inflation is likely to
rise gradually as domestic demand picks up; however, the continuing decline in
commodity prices may moderate the increase in the consumer price index. Domestic
real economic and labour market factors continue to have a disinflationary
impact. Consequently, inflation is expected to
levels around the 3 per cent target only towards the end of the forecast horizon,
reflecting moderate underlying inflation.
According to the preliminary estimate,
domestic economic growth continued in the second quarter. Growth was slightly
slower than projected in the June
, presumably as a result of the weaker agricultural output. The
Council assesses that, based on the monthly macroeconomic indicators,
underlying growth has not changed significantly and economic growth is likely
to continue at a rapid pace. In June, industrial production rose relative to
the previous month and the same period a year earlier. The dynamics of
sales have been stable in recent months, with the volume of sales increasing
across a wide range of products. Rising household real income underpinned by
low inflation, the reduced need for deleveraging and growing employment are
expected to contribute to the increase in household consumption.
Investment is expected to pick
up gradually, owing to the recovery in activity, as well as the Funding for
Growth Scheme and its extension. E
mployment continued to grow, with the unemployment
rate falling below 7 per cent in the second quarter
in global financial markets has been volatile in the period since the Council’s
latest policy decision, but this has had little impact on domestic financial
market indicators. Developments at the negotiations on the settlement of Greek
government debt led to an improvement in sentiment. By contrast,
global risk appetite deteriorated,
reflecting uncertainty about Chinese capital market developments and the
country’s growth outlook as well as an impending interest rate increase by the
US Fed. Domestic financial markets have been calm, with the forint fluctuating
against the euro within a narrow range.
The domestic
CDS spread and long-term government bond yields have been broadly unchanged
since the previous policy decision. The persistently high external financing
capacity of the Hungarian economy and the resulting decline in external debt
have contributed to the reduction in its vulnerability. In the Council’s assessment,
a cautious approach to monetary policy is warranted due to uncertainty in the
global financial environment.
In the Council’s
assessment
, there continues to be a degree of unused capacity in the economy and
inflationary pressures are likely to remain moderate
. The negative
output gap is expected to close only gradually over the policy horizon. If the
assumptions underlying the Bank’s projections hold, the current level of the
base rate and maintaining loose monetary conditions for an extended period are
consistent with the medium-term achievement of the inflation target and a
corresponding degree of support to the economy.
The abridged
minutes of today’s Council meeting will be published at 2 p.m. on 9 September
Monetary Council