Press release on the Monetary Council meeting of 26 January 2016 | MNB.hu
Central bank: mnb | Type: statement | Date: 2016-01-26

26 January 2016
meeting on 26 January 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
increased, while core inflation was unchanged in December 2015.
The Bank’s measures of underlying inflation continue
to indicate moderate inflationary pressures in the economy.
been a marked fall in oil prices recently. As a result, inflation may be lower
over the short term than earlier expected.
Core inflation is likely to rise
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.
third quarter of 2015, Hungarian economic growth continued at a weaker rate
than in previous quarters. The decline in agricultural production and the
moderation in industrial production dynamics were the main factors contributing
to the deceleration. As in previous months,
sales growth was stable in November, with their
volume increasing across a wide range of products. Employment increased
slightly and unemployment declined again after stagnating in the previous month
growth in emerging markets and the deceleration in funding from the EU will
lead to a slowdown in growth this year. A recovery is expected from the second
half of 2016, mainly reflecting the strengthening 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 and the recent
steps taken by the Government to encourage home building are expected to dampen
the slowdown in the rate of growth. In addition to these factors, rising
household consumption is likely to support the economic expansion in the coming
Overall, sentiment in global financial markets has
deteriorated since the Council’s latest policy decision.
In the second part of
December, investor sentiment improved temporarily following the Fed’s interest
rate decision. In January, risk indicators rose significantly in certain
emerging countries in response to
unfavourable
macroeconomic data from China, the fall in the Chinese equity market and the
significant drop in oil prices. At the end of the period, the European Central
Bank’s communications affected investor sentiment favourably. Domestic
financial markets remained stable even in the deteriorating investor
environment. The forint exchange rate has appreciated and the domestic risk
indicators have been mixed 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.
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.
Council’s assessment, the reduction in unused capacity is stopping temporarily
as economic growth slows, and therefore the negative output gap will close only
at the end of the policy horizon. Inflationary pressures remain moderate over a
sustained period. 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, 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.
gradual phasing-out of the two-week central bank deposit facility, serving to
ease monetary conditions, and with the more active use of central bank interest
rate swaps, a set of instruments effectively supporting the monetary policy
objectives will be developed. 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
context, the Council closely examines developments in the foreign monetary
environment, particularly the measures of the European Central Bank. If the
Monetary Council considers it necessary, further monetary loosening will be
implemented, primarily using the existing unconventional tools.
abridged minutes of today’s Council meeting will be published at 2 p.m. on 10 February
Monetary Council