Financial market stability is key to inflation returning to the medium-term target due to the stronger effect of exchange rates on consumer prices.

This is according to the minutes of the central bank's 26th March policy meeting published on Wednesday.

Last month, the bank lowered its base rate by 75 basis points to 8.25% as forecast, slowing down the pace of rate cuts as the Forint declined to a one-year low, partly due to the intensifying standoff between the bank and the government, Reuters reports.

Although the tensions have diminished in recent weeks, the Forint remains approximately 2% weaker against the Euro this year, whereas Poland's Zloty has strengthened by the same margin. This strengthening is supported by the renewed flow of European Union funds and expectations of stable interest rates throughout this year.

"As the pass-through of exchange rate change into consumer prices had become stronger, it was in the interests of the Hungarian economy to maintain a stable, predictable financial market environment," Hungary's central bank stated.

According to rate setters, the structure of Hungarian inflation has altered, shown in higher services price increases than seen before.

In spite of the recent significant declines in overall inflation rates in Central Europe, service inflation remains notably high, ranging from 10.4% in Hungary to 7.3% in Poland, according to recent data compiled by Raiffeisen Bank. These figures surpass the levels observed over the past decade.

"Against this background, members stressed that subdued imported inflation was crucial to achieving the inflation target, for which maintaining stability in financial markets is essential," the central bank went on to add.

The upcoming policy meeting is scheduled for 23rd April, during which the bank has indicated its intention to likely decrease the rate of interest cuts even more, following reductions totalling 975 basis points since last May.

News you might like

Media contact

deVere Europe’s Public Relations Department deals with all areas of the media and external communications including international, national, regional, local, trade, consumer, print, broadcast, social and online. The Department aims to provide a helpful service to journalists, broadcasters and editors, amongst others, and reply to all media enquiries, including urgent enquiries out of hours, within agreed deadlines. Our press office does not have access to client details and will not be able to assist with individual client enquiries. Please contact deVere Europe’s Head of Public Relations on george.prior@devere-europe.com or call +44 2071220925