While the National Bank of Hungary (NBH) forecasted in its November 2007 Inflation Report that inflation could moderate to 3.0%, i.e. a level of price stability, by the first quarter of 2009, the bank's latest quarterly Report on Inflation projects this will happen only in Q1 2010. This and the fact that inflation is now expected to remain significantly above the target on the time horizon relevant for monetary policy unequivocally justifies today's 25-bp rate hike by the Monetary Council.
In the chart below we have compared the central bank's baseline scenarios in its past four inflation reports, which clearly indicate that (on the assumption-based forecast), the date by which the 3% goal could be reached has been pushed further ahead (while the staff reports an increased weight of upside risks, see the 2nd charts).
Consequently, the MPC prepares itself to maintain strict monetary conditions, as Governor András Simor also told a press conference today.
“ In respect of domestic factors, upside risks to inflation could stem from economic agents passing on cost shocks to their clients to an increasingly large extent or relying on past inflation in their decisions on prices and wages more strongly than assumed in the baseline scenario," the NBH staff said in the Inflation Report.
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