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Base rate cut No. 8

The Monetary Council of the National Bank of Hungary (MNB) cut its benchmark interest rate from 9.5% to 9% today, the new rate is taking effect as of Jan. 25. The economic fundamentals released over the recent months have led the council to believe that the currently prevailing positive trends, which surpassed forecasts made late last year and earlier, will remain to stay. However, the need to stabilize the current economic situation and preserve investor confidence necessitates a cautious interest rate policy, according to the council. Although international investors remain optimistic, signs of uncertainty in Hungary?s financial markets have also been apparent over the recent weeks, which the Monetary Council will take into consideration when making future decisions. In December, the rate of inflation continued to slow down, a trend paralleled by the long-term indicator of core inflation. According to the Monetary Council, it is likely that inflation will return to the level where it stood before the VAT raise early last year, and chances are slim that end-of-year inflation would exceed the end-of-year targets of 4% in 2005 and 3.5% in 2006.