In 2015, the Hungarian economy performed very well. The economy is likely to have expanded above trend in 2015 after many years of stagnation. This led to stronger price pressures with core CPI inflation accelerating from February, while in May the overall CPI inflation moved into positive territory. The solid performance of the economy was also seen in equity prices, with the 43.81% increase in the Budapest stock exchange.

However, the economy's performance in 2016 might face challenges from weak external demand. The measures of slack in industrial output in Hungary and Germany have co-moved nearly one for one historically. However, recently, industrial output in Germany has significantly weakened that might also lead to a weaker than expected expansion in Hungary.

Moreover, since the start of 2016, the HUF has appreciated considerably against the euro. This possibly suggests that the National Bank of Hungary left monetary policy unchanged in response to the ECB's easing decision in December. If this is continued, this might impact growth and make it difficult to achieve the inflation target in the medium term.

National Bank of Hungary Deputy Governor Martin Nagy has recently stated that the central bank is no longer ruling out additional cuts in the base rate. Nagy added that the central bank still prefers to use unconventional monetary policy first before going back to rate reduction. Nagy projected that reductions in rate might be executed after April.

On 22 March the Monetary Policy Committee will meet, after the ECB's monetary policy announcement. The ECB is expected to further ease policy in March and that is likely to put more pressure on HUF against the euro. However, unconventional monetary policy is unlikely to be enough on its own to steady the exchange rate. The National Bank of Hungary is expected to further lower interest rate by 25bp in Q2 2016.