Inflation can be brought back to target by maintaining interest rates at their current level

The Report, prepared by the staff of the Magyar Nemzeti Bank, points out that inflation is likely remain above 4% throughout most of 2011, due to the cost shocks (mainly the oil and food price shocks) hitting the Hungarian economy. However, inflation can be brought back to the 3% target by 2012 H2 by maintaining interest rates at their current 6.00% level over a sustained period. Annual average inflation is expected to be 4% this year and 3.4% next year.

Economic growth is likely to pick up further in 2011. The Report also points out that the pattern of growth may become more evenly balanced as domestic demand makes an increasing contribution, in addition to exports. The Bank expects economic growth to be 2.9% in 2011 and 3.0% in 2012. Nevertheless, the level of output is likely to remain below potential throughout the period.

The Bank’s Quarterly Reports on Inflation, containing comprehensive analyses of the Hungarian economy, have been published since 1998. Beginning this year, the Reports will be produced using an enhanced projection model, which takes into account that the Monetary Council will seek to counterbalance inflation risks. The Report is available on the Bank’s website at www.mnb.hu under ‘Publications’.

MAGYAR NEMZETI BANK
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