October 15, 2019 / 1:46 PM / a month ago

Hungary central bank's loose policy stance remains justified: IMF

BUDAPEST (Reuters) - The National Bank of Hungary’s continued accommodative monetary stance remains appropriate given a recent decline in inflation and uncertain global economic growth conditions, the International Monetary Fund (IMF) said on Tuesday.

The Hungarian central bank left interest rates unchanged last month, with global monetary easing, a deteriorating euro zone economic outlook and lower inflation outweighing considerations about a sliding forint.

The bank, which has also launched a corporate bond purchase scheme to cut funding costs for businesses, has also trimmed its key inflation forecasts for this year and next and warned of downside risks to Hungary’s growth outlook.

“Given the recent moderation of inflation, uncertain global growth conditions, and the resumption of monetary easing by the ECB, it is appropriate for the monetary stance to remain accommodative,” the IMF said after a regular visit to Hungary.

“Attention should be given to any emerging price pressures, including from second-round effects of the recent oil shock. In addition, clear and timely communication will remain essential for effective forward guidance,” it said in a staff report.

The IMF said Hungary Prime Minister Viktor Orban’s objective to balance the budget over the medium term would help create fiscal leeway, which could be used in the event of any future economic downturn.

“Such consolidation would reverse the procyclical fiscal stance of the past few years and allow monetary policy to remain accommodative for a longer period, helping preserve Hungary’s competitiveness,” it said.

Hungary aims to balance its budget by 2023, according to its latest euro convergence program.

The IMF said its own forecasts implied a somewhat higher deficit path for Hungary, recommending cuts in tax exemptions and reductions in the public wage bill among other ways to help meet fiscal targets.

Reporting by Gergely Szakacs, editing by Ed Osmond

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