Measures of underlying inflation continue to indicate moderate inflationary pressures and with a marked fall in oil prices, inflation may be lower over the short term than earlier expected. Inflation is expected to remain below the 3% target over the forecast period, and is only likely to approach it by the end of the forecast horizon.

If the assumptions underlying the central bank’s projections hold, the current level of the base rate and maintaining loose monetary conditions for an extended period, over the entire forecast horizon, are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy. In the third quarter of 2015 economic growth continued at a weaker rate than in previous quarters.

The decline in agricultural production and the moderation in industrial production dynamics were the main factors contributing to the deceleration, the Council said. In the Council’s assessment, the NBH’s Growth Supporting Programme and recent steps taken by the government to encourage home building are expected to dampen the slowdown in the rate of growth.

Rising household consumption is also likely to support the economic expansion in the coming years. A recovery is expected from the second half of 2016, mainly reflecting the strengthening performance of Hungary’s export markets as well as the NBH’s and the government’s policy measures.

Sentiment in global financial markets has deteriorated since the Council’s latest policy decision, but domestic financial markets remained stable. The forint exchange rate has appreciated and the domestic risk indicators have been mixed since then.

According to the Council a cautious approach to monetary policy is warranted due to uncertainty in the global financial environment.

The Council constantly monitors whether looser monetary conditions ensure the sustainable achievement of the inflation target. In this context if the Council considers it necessary, further monetary loosening will be implemented, primarily using the existing unconventional tools.

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