Hungary central bank continues to keep a close eye on inflation
Global macroeconomic and financial developments continue to be driven mainly by the events related to the coronavirus pandemic. While industrial production has been less negatively affected so far by the second wave of the pandemic, services continue to be significantly exposed to the effects of pandemic measures. However, due to the third wave of the pandemic, the maintenance of restrictions has led to a delay in the economic recovery. The vaccination process has been slower than expected, and as a result there remains an exceptionally high degree of uncertainty surrounding the pace of global economic recovery, the MPC said in its statement.
Incoming data on GDP were more favourable than in the December projection, which confirms the rapid recovery potential of the Hungarian economy
, it highlighted regarding the fourth quarter of 2020.
Economic activity may begin to normalise from the second quarter of 2021 as the coronavirus vaccine becomes widely available, according to the MNB. GDP growth in 2021 is expected to be in the upper range of the bank's 3.5-6.0% forecast range announced in the December Inflation Report, implying a faster economic recovery.
Pricing decisions are expected to continue to exhibit high volatility in the coming quarters. The time profile of the pandemic and the expected economic recovery may continue to result in volatile pricing patterns; therefore, an exceptionally cautious approach is warranted in assessing more persistent inflationary effects, warns the MNB.
In the Monetary Council’s assessment, the increase in risk aversion vis-à-vis emerging markets continues to pose the greatest risk in terms of the outlook for inflation. It is the MNB’s clear intention to prevent the current uncertain global market environment from causing an increase in upside risks to inflation.
The bank will continue to apply a flexible approach to the amount of its weekly government securities purchases, increasing its direct purchases in the secondary market relative to the past. The MNB will use its government securities purchase programme to the extent and for the time necessary by maintaining a lasting presence in the market, and it continues to consider it as a priority to increase the share of longer maturities within the maturity profile of government debt.
It is a key priority for the MNB that short-term rates in every sub-market and at all times should develop consistently with the level of short-term rates deemed optimal by the Monetary Council. Therefore, similarly to previous quarters, the MNB will hold foreign exchange swap tenders providing euro liquidity at the end of March. Through an active market presence, the MNB cushions the spillover of tensions in international swap markets to the domestic market, thereby contributing to preserving the stability of monetary conditions and through this to maintaining price stability.
The last and key paragraph of the statement carries the same messages as in January. The MNB reiterated that
he Council continuously assesses incoming data, closely monitors the persistence of inflationary effects resulting from the restoration of the economy and the possible inflationary effects of financial market developments. If warranted by a change in the outlook for inflation, the MNB will be ready to use the appropriate instruments.
Cover photo: Getty Images
