Monetary Policy In Hungary On The Path Towards Price Stability
Presented by: Mr. FELCSER
Date: 15 – 16 February 2024
Main Messages
- Hungary's economic fundamentals have clearly improved in several areas.
- Disinflation has been widespread and persistent in the Hungarian economy. Across
Europe, inflation fell to the greatest extent in Hungary last year.
- Consumer prices rose by 5.5 percent in annual terms. Domestic inflation was one of the
lowest in the region at the end of the year.
- Underlying inflation shows a trend-like slowdown in price increases.
- Incoming data suggest that domestic growth was subdued in Q4 2023. However, the
labor market remains tight and the unemployment rate is low even by EU standards.
- The risk environment warrants a careful monetary policy approach.
- Disinflation must continue in 2024! It is necessary to maintain disciplined and careful
monetary policy in order to achieve price stability.
- In the coming months, decisions on any further reductions in the base rate and their
optimal pace will be made in a data-driven manner.
Risk Environment Warrants A Careful Approach
- International Factors
• The external inflation environment is better than expected.
• In developed markets, long-term yields have risen; however, they are still
significantly below their peaks.
• The Fed and the ECB are expected to lower rates; however, their timing has
been pushed back.
• Geopolitical tensions are still with us.
• The risk of shocks in energy and commodity markets remains high.
- Domestic Developments
• Disinflation has been widespread and persistent in the Hungarian economy
• The current account balance is improving faster than expected.
• The MNB successfully managed the year-end swap market tensions. The repo
agreement with the ECB has been extended.
• Relations with the EU have become more uncertain.
• As uncertainty increased, tensions in domestic financial markets rose
Maintain Disciplined Monetary Policy To Achieve Price Stability
- The central bank aims to achieve the lowest possible interest rate path that ends price
stability and financial market stability, in addition to enabling the restart market-based
lending.
- With this, the MNB contributes to sustainable economic growth.
- The goal remains unchanged: reducing inflation further in a sustainable manner and
reaching price stability.
- The economic environment is rapidly changing
- Monitoring Hungary's relative position against interest rate developments in the region
- Monitoring the expectations of domestic economic actors
It Is Necessary To Maintain Careful Monetary Policy In Order To Achieve Price Stability
- Inflation target
• Inflation is likely to move close to the upper bound of the tolerance band in the
spring months. The consumer price index is expected to return to the central
bank inflation target persistently in 2025.
- Financial market stability
• Ensuring financial market stability is a condition for achieving price stability.
- Data-driven mode
• In the coming months, the Council will take decisions on any further reductions
in the base rate and their optimal pace based on incoming data, the outlook for
inflation and developments in the risk environment, in a data-driven manner.
- Communication in advance
• Currently, expectations are in line with the interest rate path that the MNB
considers feasible.
