1. This statement provides information that has become available since the issuance of the Staff Report on March 13, 2015. This information does not alter the thrust of the staff appraisal.
2. On March 24, the Monetary Council lowered the policy rate. On the back of continued disinflationary pressures and as recommended by staff, the Council reduced its policy rate by 15 basis points from 2.10 percent to 1.95 percent. This cut was slightly smaller than market expectations for a 20 basis points cut. In its communication following the meeting, the Council noted that cautious easing of monetary conditions may continue as long as it supports the achievement of the medium-term inflation target.
3. At the same time, the Monetary Council confirmed its 3 percent inflation target and introduced a ±1 percent ex-ante band around it. The introduction of the band is a change from the previous framework whereby the central bank adhered to a continuous 3 percent point target with a tolerance band of ±1 percent which was used to evaluate ex post the attainment of price stability. Confirmation of the 3 percent inflation target helps reaffirm the central bank’s (MNB) intentions at a point of deflationary risk, and the introduction of the ex-ante band is in line with practices of other inflation targeting central banks. It will be important for the MNB to continue anchoring inflation expectations around the mid-point of the band.
4. Standard and Poor’s (S&P) upgraded Hungary’s rating, but it still remains non-investment grade. On March 20, S&P raised its long-term foreign and local currency sovereign credit ratings to BB+ from BB and affirmed the short-term foreign and local currency sovereign credit ratings at B. S&P noted that the upgrade mainly reflects the improvement in Hungary’s external vulnerability and growth outlook, as well as the positive impact of the FX mortgage conversion.