Hungary’s central bank, the Magyar Nemzeti Bank (MNB) raised its GDP forecast from 3.9% to 4.2% for 2018, while standing by its inflation forecast for the year, it was announced on March 27.

The central bank released the main forecasts after a policy meeting by the rate-setting Monetary Council, where all monetary conditions were left unchanged. The base rate has been unchanged at 0.9 % since May 2016.

MNB policymakers said the 3% mid-term inflation target is expected to be achieved by the middle of 2019 as they did in the previous months. The central bank kept its 2.5% inflation forecast this year and similarly kept the 2019 and 2020 forecasts unchanged at 2.9% and 3% respectively. It raised the 2017 CPI number from 2.3% to 2.4%

Inflation slowed from a 2.1% in January to 1.9% in February and core inflation, which excludes volatile fuel and food prices, slipped from 2.5% to 2.4% in the same period.

According to analysts, the figures confirm that underlying inflationary pressures remain subdued, despite robust wage growth, which reinforces the view of central bankers that keeping the base rate and non-conventional policies are justified.

Price pressure, however, may re-emerge against the backdrop of pro-cyclical fiscal and monetary loosening. Price growth is expected to be broad-based, as energy prices rise further and prices of services accelerate on the back of strong wage growth

The MNB revised Hungary's final growth rate for 2017 by 0.1pp to 4%. The central bank is predicting 4.2% GDP growth this year, up by 0.3pp as compared to its earlier forecast.

Household consumption, boosted by double-digit wage growth and investments due to accelerating EU fund absorption is driving growth, while the external environment has remained supportive.

Economic growth is likely to decelerate in 2019 to 3.3%, revised up by 0.1pp as a result of a build-up in capacity constraints, slowing growth of real disposable income. For 2020, the MNB is expecting GDP growth to slow to 2.7%, in line with its earlier prediction.

The Economy Ministry is more bullish on growth projections, with a 4.3% forecast for this year, 3.8% for 2019 and 3.7% in 2020. The government's annual average inflation forecast stands at 2.7% in 2018, 3% in 2019, and 3% in 2020, according to its December forecast.