Page 30 - CE Outlook Regions 2024

Projected disinflation would remain "strong" in Q1 2024, before slowing down in mid-2024 and inflation is set to fall below the MNB’s 3% +/-1% tolerance band only in 2025. In the fresh quarterly macroeconomic update issued on December 21, the MNB put average annual inflation at 17.6-17.7% for 2023 (17.6-18% in the September forecast), 4.0-5.5% in 2024 (4-6%) and 2.5-3.5% in 2025 (2.5-3.5%). In the convergence programme, the government sees harmonised CPI falling to 6.0% in 2024 from 18% in 2023, then levelling out at the central bank's 3.0% mid-term target for the rest of the forecast horizon.
Analysts expect the MNB to continue easing in 2024 and that the base rate will drop to 6-7% at the end of the year. The government has subtly pressured monetary policymakers to accelerate the pace of rate cuts to lower borrowing costs needed to kickstart consumption and investments. They claimed that the real interest rates are too high, but the MNB counters that cautious monetary policy is needed due to risks surrounding global disinflation, the monetary policy of major banks and the volatility in international investors. Real interest rates are seen to shield the forint, which is prone to great volatility in times of market turbulence, as it remains a favourite carry trade currency.
In the debate between inflation and growth, the government has prioritised the latter. In previous years, it sacrificed fiscal discipline on the altar of promoting higher growth. 2023 was marked by recurring sparring between the central bank and the government over who was to blame for inflation exceeding the EU average. Viktor Orban publicly voiced his disapproval of the central bank's perceived failure to effectively combat inflation in early 2023. Meanwhile, MNB governor Gyorgy Matolcsy blamed the government’s flawed economic policies for lower growth, claiming price caps on a dozen food staples lifted headline inflation by 3-4pp as companies spread losses on other products.
30 CE Outlook 2021 www.intellinews.com