Hungary

Hungary began to move gradually away from a command economy before the major political changes of 1990, and the gradual evolution continued after that, with heavy exchange rate management giving way to loose inflation targeting from 2001.

Years Targets and attainment Classification
1974-86 state planning with monobank financial system segmented between enterprises and households, with credits to enterprises controlled by sectoral credit ceilings and preferential credit schemes (and credits to households for house purchases only); official concern with high external deficits and debt; gradual introduction of price reforms, including minor financial reforms, and some use of (mainly fiscal) demand management; multiple exchange rates unified October 1981, adjusted more or less often to offset pass-through of foreign inflation to domestic prices multiple direct controls MDC
1987-94 two-tier banking system from 1987, with household-enterprise segmentation abolished 1989; credit no longer sectorally allocated and ceilings replaced over time by limits on refinancing of bank credits as main monetary policy instrument, together with prudential reserve requirements; refinancing and reserve requirements gradually made more precise and effective, while interest rates become more flexible; elements of fiscal dominance; exchange rate (more fixed than targeted) subject to repeated small devaluations on ad hoc basis to exclude foreign inflationary pressures; banks allowed to deal in forex market, within narrow but widening margins unstructured discretion UD
1995-2000 pre-announced exchange rate crawl, at speed adjusted downwards at ad hoc intervals and by ad hoc amounts, focus on competitiveness as well as inflation; exchange rate margins now +/- 2.25%; monetary policy instruments more focused, operations in short-term government securities markets gradually taking over from refinancing as main instrument, but monetary control remains weak and imprecise; continuing official focus on growth and tendency to overexpand, recurring large fiscal and external deficits; inflation remains above that of trading partners loosely structured discretion LSD
2001-6 exchange rate band widened to +/- 15% May 2001, formal inflation targeting from June 2001, with establishment of Monetary Council and quarterly inflation forecasts; main monetary policy instrument is now central bank’s benchmark interest rate; inflation reduced, but inflation targets missed twice and nearly missed once in six years; policy rate appears to respond to exchange rate as well as inflation rate; large fiscal and external deficits remain loose converging inflation targeting LCIT
2007-14 exchange rate band abandoned early 2008; static and continuous inflation targets missed four years in terms of average and missed some months in another three, out of eight years; longer term professional forecasters’ inflation expectations fluctuate around target, but within band, while shorter term expectations are higher and more volatile and households’ expectations are continuously well above both actual and target inflation loose inflation targeting LIT

Selected IMF references: RED 1982 chIV; RED 1987 pp52-4; SR 1987 pp11-12; RED 1988 pp27-34; RED 1989 pp33-40; REDBI 1995 pp18-20, chVI; RSBA 1996 pp1-6; SR 1996 pp13-15; SR 1997 pp16,18; SI 1999 chIV, p; SR 1999 pp17-18, 19, 21, 22-3; SI 2002 chI; SR 2002 pp28-9; SR 2006 pp15-16, 23-5, 29-30; SR 2008 p16.

Additional sources: Beblavy (2007a); Beblavy (2007b); Gábriel, Rariga and Várhegyi (2014).

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