UPDATE - MNB leaves key rate on hold for ninth month in a row


The Monetary Council of the National Bank of Hungary voted to keep the central bank's key rate on hold at 6% at a meeting on Tuesday, the MNB said.

Council members kept the rate on hold for the ninth month in a row.

The decision was in line with market expectations.

At a press conference after the meeting, MNB governor András Simor said the decision to keep the rate on hold was supported by the vast majority of the members. There was only one other proposal, for a 25bp rate rise, he added.

In a statement published after the meeting, the Council said the risks to the outlook for inflation and financial market developments warrant a "wait-and-see policy stance". "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 statement added.

The Council expects economic growth to remain "subdued" with output under its potential for the next two years. Inflation is likely to pick up because of government measures and a weaker forint in the short term, then moderate because of weak demand as the effect of cost shocks and indirect tax increases wear off.

The Council noted "considerable uncertainty" about the degree and time path of disinflation.

The Council said the outlook for growth had "worsened significantly", adding that consumption was likely to remain low as households adjust balance sheets and face uncertain income prospects as well as further tightening of credit conditions. Fiscal adjustments in 2012 will also probably slow the growth of domestic demand, the Council said.

An increase in the minimum wage next year and stricter rules on deferred losses are expected to reduce corporate profits next year, causing investment activity to decline, the Council said.

Domestic lending continues to make little contribution to economic growth, the Council said. Sovereign debt problems in the eurozone have made external financing more expensive and more difficult to get, and banks' capital positions have deteriorated because of an early repayment scheme for foreign currency-denominated mortgages at discounted exchange rates, it added.

The Council added that the early repayment scheme "represents a significant source of uncertainty in terms of Hungary's risk perceptions".

Simor said the central bank expects to reach its 3% "price stability" inflation target some time in 2013, instead of in the first half of 2013, as it said in the last Inflation Report.

The condensed minutes of the meeting on Tuesday will be published at 2pm on November 16.

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