Central bank raises base rate by 50bp to 7.25%

The Monetary Council of the National Bank of Hungary (MNB) raised the base rate by 50 basis points to 7.25% at its rate-setting meeting on Monday.

Although some analysts had projected a smaller cut, the rate rise was widely expected after the Monetary Council earlier said it planned to gradually increase rates to bring inflation in line with its mid-term target of 3% by 2008. The council last raised the base rate by 50bp to 6.75% on July 24.

In related news, the MNB said it forecast annual average inflation of 7% in 2007 and 4.2% in 2008, both up from its previous forecast made in May in its Inflation Report update published on Monday. The bank forecast 2006 average inflation at 3.8%. A rise in the forecasts was expected as tax rises enacted under the government’s June austerity program will give an at least temporary boost to inflation this year and the next.

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