Hungary's Bond Market: Euro Path Amid Falling Inflation
7 Articles
7 Articles
Hungarian inflation has slipped above the target for the most time in the last 20 years in the region. In addition to the lower goal, therefore, more discipline will be required.
The Monetary Council of the Hungarian National Bank (MNB) has decided to lower the inflation target, which will be valid from 2028. There has been no such example in more than twenty years. The forint began to strengthen on the news, and the euro even dipped below 360, but the good mood quickly faded.
What is the point of lowering the inflation target in itself? And what does the practice of neighboring countries show, is a lower inflation target more of a brake or a stabilizer?
The central banks of the leading countries are already pursuing an inflation target of 2 percent or close to it, and Hungary, as a candidate country for the eurozone, could have easily moved to 2 percent by now. Of course, there are some obstacles. The hardest part of euro maturity will be getting the public finances in order. Written by Ákos Péter Bod.
In the most likely scenario, lowering the inflation target from 3 to 2.5 percent through tighter central bank policy would only minimally slow economic growth. In the worst-case scenario, the transition sacrifice is twice as large. In the midst of achieving the new target, the government cannot distribute or force wage increases, as the pace is still too fast.
The Hungarian National Bank left the base rate unchanged at 5.5 percent on Tuesday, and also announced that it would reduce its medium-term inflation target from 3 percent to 2.5 percent from 2028. The central bank's decision serves to catch up with European practice and prepare for the introduction of the euro, while creating a more predictable and stable economic environment in the long term.
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