Hungary again decides to maintain central bank base rate at 6%

By Marisa Wong

Madison, Wis., May 16 - The Monetary Council of the Magyar Nemzeti Bank said it again voted to keep the central bank base rate unchanged at 6% at its meeting on Monday given certain upside and downside risks to inflation.

The council said it believes that Hungarian economic growth is likely to recover gradually over the next six quarters, but the level of output will remain below potential throughout the period.

It was noted that core inflation picked up more sharply than anticipated. Inflation is expected to be significantly above the target in the short term but may fall back close to 3% by the end of next year, even without further policy tightening, according to a bank press release.

The council foresees inflation to continue to be dominated by the balance between rising commodity prices and weak domestic demand and high unemployment. The rising commodity prices, particularly for oil and agriculture, are reflected in higher consumer prices, while weak domestic demand and high unemployment continue to mold price and wage-setting behavior.

The bank said that external demand is expected to remain the main driver of economic growth for Hungary in the coming quarters. There is no sign yet of improvement in domestic demand.

The abridged minutes of the council's most recent meeting will be published at on June 8.

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