The 2010 Annual Report of the Magyar Nemzeti Bank provides a review of last year’s most important macroeconomic developments. According to the Report, annual average inflation was 4.9% in 2010, and consequently, the Bank’s 3% target for CPI inflation was not met. However, inflation of certain goods and services prices that monetary policy is able to influence has been relatively low since the outset of the financial crisis, and the short-run measures of inflation pointed to moderate inflationary pressures in 2010. This, however, was insufficient to fully offset inflationary pressure arising from the tax measures in the first half of the year. Sharp rises in food prices and global oil prices led to a significant increase in price indices. Inflation expectations becoming stuck at a high level, in addition to the cost shocks, may be another factor explaining why the inflation target could not be met, despite the historically low level of whole-economy capacity utilisation.

The financial results of the Magyar Nemzeti Bank are determined predominantly the objectives of monetary policy and the instruments required to attain them. For this reason, the Bank’s results are not an indicator of the success of its operations. Performance of the MNB’s core task of achieving and maintaining price stability, provided by law, may not be influenced by the effects on earnings; however, the Banks strives to keep its operating expenses reasonably low and saves taxpayers’ money in an exemplary fashion.

The Magyar Nemzeti Bank incurred a loss of HUF 41.6 billion in 2010, compared with a profit of HUF 65.5 billion a year before. This deterioration resulted primarily from the sharp decline in the previously extraordinarily high profit arising from exchange rate changes, on the one hand, and from the reduced income realised on financial operations, on the other. By contrast, net interest and interest-related income increased owing to a reduction in the difference between forint and foreign currency yields; and net expenditures arising from other constituents of net income declined as well. The loss was covered by retained earnings of previous years. Consequently, the central government had no obligation to reimburse the Bank for its loss.

On 31 December 2010 the MNB had an unrealised loss of HUF 29.1 billion on foreign currency securities holdings marked to market, which was reflected in the revaluation reserves of foreign currency securities. Pursuant to the Act on MNB, the amount of negative balance was reimbursed by the central government until 31 March 2011.

In 2010, the Bank continued to reduce its operating costs. Last year, costs fell by nearly HUF 1 billion. Costs were at such a low level last in 2003 (in nominal terms). In real terms, operating costs in 2010 were 53% of their level in 2001. Within operating costs, personnel costs fell by more than HUF 650 billion in 2010, associated with a 2.2% reduction in the number of Bank staff.

The Bank’s environmental performance indicators improved in 2010: electricity and natural gas consumption fell by 6% and water consumption by 40%. About 75% of the Logistics Centre’s total water needs is supplied by the Centre’s own well. The conscious use of video conferences resulted in a reduction in CO2 emissions of 4.7 tons. As another proof of the Magyar Nemzeti Bank’s environment conscious activities, the Bank won the Greenest Office Award in 2010.