Page 13 - bne_newspaper_November_23_2018

Central Europe
November 23, 2018 www.intellinews.com I Page 13
Hungary’s central bank not taking policy shift yet
bne IntelliNews
The Hungarian National Bank’s (MNB’s) Monetary Council kept its key rate on hold at 0.9%, the O/N deposit rate at -0.15% and the O/N collateralised loan rate at 0.9% at a monthly policy meeting on November 20 in line with projections.
The MNB remains the most dovish bank in the region. Policymakers have stuck adamantly to keeping the base rate at record lows despite the start of monetary tightening in major developed and emerging markets.
Prior to Tuesday's meeting, the minority view of analysts was that the MNB would send a signal about future tightening on the back of rising infla- tion and robust economic growth. The consensus was that the MNB would wait before December to unveil some sort of a roadmap on its policy course when the quarterly inflation report is also due out.
The Monetary Council reaffirmed its statement made in September, which marked the first sign of a policy shift when it said it was "prepared
for the gradual and cautious normalisation of monetary policy".
Rising inflation poses the biggest risks to main- taining the present ultra-loose policy, hence the markets were paying close attention to comments on the outlook of these trends. The headline infla- tion rose to a five-year high of 3.8% in October, a surprise to the upside for markets and the MNB, which previously forecast a 3.3% y/y increase.
The figure came close to the upper band of the MNB's 2-4% tolerance band, though 2.6% core
inflation was still comfortably below that level. Policymakers attributed the rise in the CPI to the increase in volatile items such as fuel, food and tobacco prices.
Inflation is expected to decrease in the coming months due to the fall in fuel prices, while the measures of underlying inflation are likely to rise, which reflects an important change in the MNB statement compared to the previous month, when they noted that measures of underlying inflation were stable at 2.5%.
The MNB forecasts a decelerating CPI for November and December, above the 3% level, due to the drop in fuel prices. The difference between the inflation rate and the measures of underlying inflation will narrow towards the end of the year, they forecast.
Central bankers confirmed that inflation expectations remain anchored at low levels, but unlike in the last report, the reference to second- round effects was left out.
These inflationary developments will ensure that the 3% medium target will be reached in
a sustainable manner from mid-2019, a key target date left unchanged from the previous months. To ensure this, in the council’s assessment, maintaining the current level of the base rate and the loose monetary conditions is necessary, they added.
Takarekbank sees any tightening unlikely before mid-2019, when the MNB could first phase out