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Statement by the Monetary Council on the medium-term inflation target


According to Article 3 of Act LVIII of 2001 on the MNB, the primary objective of the MNB is to deliver and maintain price stability. Within the framework of inflation targeting, the Monetary Council of the MNB defines a quantitative inflation target consistent with price stability, and pursues a monetary policy aimed at meeting the set inflation target. The most important aspects of defining the inflation target are that (i) it must be sufficiently low to keep economic losses arising from inflation to a minimum, (ii) it must take into account potential statistical biases that may stem from the method of calculating the consumer price index, and (iii) it must reduce the risk of deflation to an adequate level. Accordingly, the Monetary Council has defined the inflation target at 3% as measured by the consumer price index published regularly by the Central Statistical Office.

Monetary policy actions have their effects on developments in inflation with a lag. Therefore, the Monetary Council of the MNB takes its interest rate decisions in a forward-looking manner, taking account of the likely future path of inflation over the coming 5–8 quarters. Unexpected shocks hitting the economy may cause deviations in inflation from the 3% target in the short term. The MNB strives to conduct its policy in a way to bring inflation back to target in the medium term.

In assessing performance in meeting the inflation target, fluctuations caused by unanticipated shocks should also be taken into account. For this reason, the Bank deems a maximum ±1 percentage point deviation of the consumer price index (tolerance margin) from the 3% target as consistent with price stability. In February each year, the Monetary Council publishes a statement containing an assessment of the Bank’s performance in meeting the inflation target in the previous year.