No strong messages from today's Monetary Council meeting

HUNGARY - In Brief 23 Mar 2021 by Istvan Racz

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The Monetary Council's regular monthly rate-setting meeting ended without any policy change today. No changes can be foreseen on the basis of what the Council said in its statement or at the usual press conference.One timely subject is the current and prospective upswing of the headline inflation rate in Q2, due to the massive base effect generated the collapse of oil prices a year earlier, and to their recovery in these days. The MNB said today that headline inflation will run above the 4% tolerance ceiling in Q2. But they added that this will be temporary, with no material impact for longer term.The Bank still sees financial markets' sentiment towards emerging economies as the biggest risk factor, followed by the 'second-round' inflation risk in the wake of economic recovery. Please, bear in mind that the MNB expects GDP growth of 4-6% (real terms!) this year and 5-6% growth in 2022.In our view, the MNB is once again overly optimistic about short-term GDP growth, just as it happened in 2020. The Finance Ministry, which has a much better record in correctly forecasting GDP, expects 3.5% growth this year, but even that figure was set before the most recent Covid lockdown was put in place. So growth is more likely to end up somewhere in the 1-3% range in our view.Regarding headline inflation in the forthcoming months, we expect it to rise first to 3.4% yoy in March and then to 4.5% yoy in April. The latter is likely to be a peak value, so that the headline rate will probably ease back to 4% by June.