Press release on the Monetary Council's meeting of 22 March 2004 | MNB.hu
Central bank: mnb | Type: statement | Date: 2004-03-22

At its meeting on 22 March 2004, the Monetary Council considered the latest economic and financial developments and lowered the central bank base rate by 25 basis points, from 12.50% to 12.25%. The decision will take effect from 23 March 2004.
Cyclical conditions have recently been improving gradually, as the Bank expected. Increasingly positive developments in the external business environment have been a factor contributing to the recent pick-up in Hungarian exports, which, in turn, has been reflected in a robust rise in output and an upturn in corporate investment activity. All this, encouraged by the gradual fiscal adjustment and an anticipated slowdown in household consumption, is likely to influence the pattern of growth favourably: the export sector and fixed investment are expected to become the driving forces of growth, replacing domestic consumption.
The positive cyclical developments, already noted, have also been reflected in the country’s improving external balance. Exports, rising more rapidly than imports, have been instrumental in the recent steady decline in Hungary’s current account deficit. Household consumption expenditure remains very high. Nonetheless, the Bank expects a trend rise in household savings, driven by the recent changes in housing market conditions and a consumption path more consistent with long-term income. As a simultaneous development, the Government’s fiscal adjustment programme raises the likelihood of a drop in the external borrowing requirement.
Inflation has continued to pick up speed since early 2004. In the main, this reflects the upward effect of the increase in indirect taxes. Looking ahead, inflation is likely to moderate as domestic demand growth slows. However, it is important for a decline in upward risks to inflation that wage inflation in the private sector should continue to moderate.
Foreign investors’ perception of risks related to forint-denominated investments has improved considerably in the past 1.5 months. The fall in risk premia required by investors mainly reflects improvements in macroeconomic performance and in confidence in Hungarian economic policy.
In the Council’s assessment, the conditions for meeting the 4% inflation target for end-2005 have improved, allowing to lower the central bank base rate.
With effect from 1 March 2004, the President of the Republic appointed Dr Ilona Hardy and Vilmos Bihari members of the Monetary Council for a term of six years. Dr Hardy and Mr Bihari attended today’s Council meeting for the first time since their appointment.
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