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Central bank governor forecasts annual inflation of 3.9% this year

National Bank of Hungary (MNB) Governor Andras Simor predicted that Hungary would have average annual inflation of 3.9% in 2011, identical to that forecast in the MNB's most recent quarterly inflation report published in June.

Speaking on a Hungarian Television program on Monday morning, Simor said the bank expects the average inflation rate to dip to around 3.0% at the end of 2012.

The government's updated convergence program published in April forecast average annual inflation of 4.0% in Hungary this year and average inflation of 3.4% next year.

Inflation averaged 4.9% in 2010.

Simor reiterated a statement made at the beginning of this month that contradictory forces are acting upon prices in Hungary: whereas external factors, notably the cost of energy, raw materials and agricultural commodities, are exerting upward pressure on inflation, sluggish domestic demand and employment growth are exerting downward pressure on prices.

This year the external factors are expected to exert the bigger influence, he said, noting that the bank would take aggressive steps to reduce inflation to 3% by the end of this year if rising prices stemmed from internal factors.

An expected halt in the rise of oil prices and more favorable costs for agricultural commodities following the harvest of this year's crops as well as continuingly stagnant internal demand are likely to push inflation down to the 3% mark at the end of next year.

The MNB governor said the bank scaled down its 2011 growth projection from 3% to 2.6%-2.7% as both external and internal factors point to slower growth.

Debt problems in Europeand the resulting fiscal tightenings will dampen the growth of Hungary's main export markets, and the fiscal savings contained in the government's Szell Kalman Plan and updated euro-convergence plan will curb domestic demand.

Simor remarked that the MNB is reformulating its ethical code.