MNB may raise rates by 25 or 50 basis points

Analysis

The National Bank of Hungary (MNB) is expected to raise its base rate from 6.75% on Monday but analysts are split over the size of the increase, a Reuters poll of analysts showed yesterday. In the poll, conducted between August 21 and 23, 10 of the 23 participants projected a 25 basis point hike, 9 saw a half-point increase and 4 analysts stated there would be no rise. The MNB lifted its interest rates by 50 basis point last month, surprising most analysts who had expected a smaller hike. That followed a quarter-point rise in June. The poll expected the MNB's base rate, which is already the highest in the EU, to rise further to 7.50% by the end of the year. After years of overspending, Hungary’s budget gap will surge to 10.1% of GDP in 2006. It has abandoned a 2010 euro entry date, giving it longer to bring its deficit down to 3%, the required level to meet the Maastricht criteria for adopting the euro. Analysts say the proposed measures may keep inflation higher. (Econews, Magyar Hírlap)

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