The Hungarian central bank's (MNB's) monetary policy stance will continue to be accommodative, according to the statement of the Monetary Council (MC) released on April 30 after its monthly policy meeting, where policymakers kept the base rate and the O/N deposit rate unchanged at 0.90% and -0.05%, respectively in line with consensus.
At the previous meeting, central bankers raised the O/N deposit rate by 10bp and reduced the MNB’s stock of outstanding FX swaps, marking the first policy tightening in years. In a statement released after the meeting, the council reiterated guidance issued after the March meeting, when it said its decisions will be data-driven.
The monetary policy stance will continue to be accommodative, the Monetary Council said, adding that it applies a cautious approach to policy decisions and relies mainly on projections in the quarterly inflation report in June.
Headline CPI accelerated to 3.7% in March from 3.1% February, the second-highest reading in six years, lifted by rising fuel and tobacco prices. MNB's separate inflation gauge showed core inflation excluding indirect tax effects, a bellwether indicator of underlying inflation, rising 0.3pp to 3.5% last month, the highest level in years.
In the latest statement, the MC said inflation will fluctuate around the 3% target and core inflation excluding indirect tax effects is "expected to continue to rise until the autumn months and then to decline from the end of 2019".
Two opposite forces are sharing inflationary developments, it said. On the one hand, persistently buoyant domestic demand is boosting prices upward while weakening external activity is restraining the pace of price hikes.
Despite the upside surprise in inflation over the last three months, governor Gyorgy Matolcsy asserted that tightening measures would be enough to bring inflation back to target, but some are skeptical about this.
ING said the MNB's inflation-targeting credibility could be questioned when the April inflation figures are published on Thursday. ING expects the core figure to rise to 4% and the headline data to 4.1%.
The analysts expect the three-month BUBOR rate, the best gauge of the monetary stance, will rise from 0.16% now to 0.75% by the end of 2019. Due to the passive stance of the bank, the EUR/HUF pair could rise to 329 next month from 323.5.
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