BUDAPEST Oct 6 A return to higher levels of
inflation may not happen even with extraordinary stimulus
measures by central banks because of structural factors such as
ageing populations, Hungarian central banker Barnabas Virag said
"It is clear that there are serious structural forces at
play, which contribute to inflation being this low, such as
globalisation and changing demographic trends," Virag told a
conference organised by financial news website portfolio.hu.
"We have been saying for two years that we expect to reach
our inflation target on a two-year horizon," said Virag, who is
managing director of the National Bank of Hungary.
"The Japanese have been saying this for 20 years."
Faced with inflation near zero, Hungary's central bank has
lowered its base rate to a record-low 0.9 percent and
aims to squeeze hundreds of billions of forints out of its main
liquidity tool into the economy by the end of this year.
Its next policy meeting is due on Oct. 25.
The bank has said it would not cut its base rate further but
use targeted unconventional tools to ensure inflation approaches
its 3 percent target, now expected around the middle of 2018.
Hungary imports low levels of inflation due to weakness in
the euro zone, its main trading partner, as well as a fall in
oil prices. Like many richer countries, its population is
projected to fall by millions by the middle of the century based
on current trends, from just below 10 million now.
Virag said these broader factors could result in sustained
weaker price growth in the longer run and the return of higher
inflation levels "should not be taken for granted".
Signs that structural changes are weakening central banks'
influence over inflation and growth raise questions about the
viability of inflation targeting, the cornerstone of modern
monetary policy. The topic will be among those discussed at the
International Monetary Fund's annual meeting this
Hungary's annual headline inflation ran at -0.1 percent in
Virag said the central bank hoped that its latest measure to
limit the amount of funds commercial banks can park in its main
liquidity instrument would also contribute to higher lending in
the economy or at the very least reduce bond yields.
The central bank expects average annual inflation at 0.4
percent this year, and 2.3 percent in 2017.
(Reporting by Gergely Szakacs; Editing by Catherine Evans)