• All other goals subsidiary to central bank's inflation target
  • Current monetary policy adequate to achieve inflation target

Hungary’s central bank isn’t neglecting its inflation goal, and its main priority remains targeting price growth, said Janos Cinkotai, a Hungarian rate-setter who’s been studying prices since the communist era.

“Inflation isn’t a game,” Cinkotai, 69, said in an interview on Friday. Besides financial-stability considerations, “the central bank has one priority and that’s to meet its inflation target. Everything else comes after this.”

National Bank of Hungary President Gyorgy Matolcsy has been stung by criticism, including from OTP Bank Nyrt.’s fund management unit, that the monetary authority was risking its inflation-targeting credibility by focusing on other tasks. These include supporting economic growth by providing cheap credit and changing its benchmark facility to boost local lenders’ share of state-debt financing.

The headline inflation rate returned to positive territory in May, following eight months of falling prices. In July, the latest month for which there’s official data, price growth was 0.4 percent from a year earlier as fuel prices plunged 8.4 percent. The central bank targets 3 percent inflation in the medium-term.

Will Shout

“Our inflation commitment would become clear to everyone if inflation would shoot up,” Cinkotai said, adding the bank had no exchange-rate or balance-sheet target. “I’ll be the first to shout if the inflation target is in jeopardy and the central bank doesn’t act.”

Cinkotai has been pouring over the minutia of price data since his time working at the price authority in Hungary’s then-centrally planned economy before the fall of the Iron Curtain. Following the end of communism, he served as an aide to the first democratically elected prime minister. Since 1994, he has been an adviser to three central bank presidents before he joined the rate-setting panel in 2011.

The forint has been resilient in the face of monetary easing. It has weakened 1.5 percent against the euro in the past month as a current-account surplus, political stability and fiscal control helped it weather a wave of devaluations in China, Kazakhstan and other countries and a sell-off that hammered emerging-market currencies across the globe. The forint traded at 313.95 per euro by 4:10 p.m. in Budapest.

Rate Cuts

The central bank has cut borrowing costs 29 times in the past three years from 7 percent as falling commodity prices and government-mandated household energy-price cuts subdued inflation pressures. The benchmark rate, at 1.35 percent, is the second-lowest among the European Union’s non-euro members behind the Czech Republic. It will probably be left unchanged for a “very long” time, Matolcsy said on July 21, after announcing the end of the latest easing cycle.

Cinkotai was first to push for monetary easing in the rate-setting panel in early 2012 as he forecast the end of Hungary’s high-inflation era. He was alone in advocating cuts for five months before the majority joined him in August of that year to begin what became one of the longest easing cycles in European monetary-policy history.

As the easing cycle dragged on, Cinkotai dissented 11 times from the majority, according to a Bloomberg tally, arguing for slowing the pace of rate reductions and then stopping even as his colleagues called for more easing. He said the differences were minor and stemmed from his “more cautious attitude.”

Cinkotai said “hectic” energy-price movements may have a “serious impact on European price indexes,” though monetary-policy makers should only react to “sustained trends and should look through short-term effects.”

“The inflation goal can be met with the current monetary conditions,” Cinkotai said. “Of course, the environment can change quickly.”

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