Tuesday, November 29, 2011

Hungary Central Bank Lifts Rate 50bps to 6.50%

The Magyar Nemzeti Bank increased its central bank base rate by 50 basis points to 6.50% from 6.00%.  The Bank said: "Monetary policy can best support the recovery and contribute to an environment conducive to investment and job creation by maintaining predictability and preserving the stability of prices and the financial system. The depreciation of the forint in recent months has caused a deterioration in the inflation outlook and increased the need for balance sheet adjustment in the economy. The Monetary Council decided to raise the base rate by 50 basis points in view of the upside risks to inflation and increased perceptions of the risks associated with the economy. If the outlook for inflation and risk perceptions remain persistently unfavourable, it may prove necessary to raise interest rates further in the coming months."

The Magyar Nemzeti Bank previously held the interest rate unchanged at 6.00% during its October meeting, after raising it 25 basis points in January this year.  Hungary reported annual inflation of 3.6% in September and August, compared to 3.1% in July, 3.5% in June, 3.9% in May, and 4.7% in April.  Hungary's Central Bank has a medium term inflation target of 3%, while the Bank expects inflation to average 3.9% this year.

The Hungarian economy grew at an annual rate of 1.5% in the June quarter, compared to 2.4% in the march quarter, and 1.9% GDP growth recorded in the December quarter last year.  The Hungarian forint (HUF) has lost about 11% against the US dollar this year, the USDHUF exchange rate last traded around 232



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