• With effect from 1 December 2003, the President of the Republic appointed Dr György Kopits as member of the Monetary Council for a term of six years. Dr Kopits attended the Council's meeting for the first time. With the mandate of Werner Riecke expiring on 15 January 2004, the current number of the members of the Monetary Council is 7.
  • At its meeting on 19 January 2004, the Monetary Council considered the latest economic and financial developments and left the central bank base rate at 12.50%.
  • Average consumer price inflation was 4.7% in 2003, close to the Bank's expectation. Year-on-year inflation in December 2003, at 5.7%, turned out to be higher than the Bank's below 4.5% target. Analysing the underlying reasons, the Council found that the difference may be linked to transitional and permanent factors. The rise in unprocessed food prices in November, exceeding expectations, was the major cause of the difference between the 4.9% core inflation outcome and the actual consumer price index. The higher-than-planned government deficit, the rapid increase in household sector consumption expenditure and the higher-than-anticipated wage inflation contributed to inflationary pressures.

Monetary conditions during the year changed considerably – despite an increase in the nominal interest rate, the exchange rate depreciated. Consequently, the change in monetary conditions only partly offset the inflationary pressure generated by other factors.

  • External business conditions have in recent months showed signs of a recovery. Receiving impetus from a gradual pick-up in the global economy, Hungary's external balance has improved – export growth has risen, and growth in GDP may gather momentum helped by the improving global economic outlook.
  • In 2003, the government deficit, at HUF 1,054 billion or 5.6% of GDP, exceeded the plan, while meeting the Bank's earlier forecast. The higher-than-planned deficit has given reason to raise the forecast of the 2004 general government deficit to 4.6% and simultaneously to reduce government expenditure by HUF 150–160 billion, announced by the candidate for Minister of Finance. The Council welcomes the Government's steps towards a realistic assessment of economic conditions. However, in the Council's view meeting the planned deficit forecast will require sustained effort.
  • The Monetary Council of the Magyar Nemzeti Bank continues to support the adoption of the euro as early as possible, as this may result in considerable advantages for the Hungarian economy in terms of growth. The country's accession timetable should be set in such a manner that it would reflect its responsiveness to the changing economic environment. Economic adjustment, required by the Maastricht criteria, is not only important for joining the euro area, but also consistent with Hungary's interests. In this respect, reducing the general government deficit is of particular importance.
  • Irrespective of the anticipated date of adopting the euro, the primary objective and statutory obligation of the MNB is to deliver and maintain price stability. This is in line with the laws and requirements of the European Union. Accordingly, the Council continues to consider meeting the 4% inflation target for end-2005 as its most important goal. In order to meet this target, the MNB expects co-operation from the Government and market participants.