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Central bank raises inflation forecast to 4.5% in 2009

Hungary 's central bank forecasts annual average consumer price inflation of 4.5% and GDP contraction of 6.7% this year in its latest inflation report to be published on Wednesday. In the previous report in February the bank forecast GDP contraction of 3.5% and annual inflation of 3.7%.

Inflation is seen decreasing to 4.3% in 2010 as opposed to 2.8% in the previous Inflation Report and GDP expected to fall 0.9% instead of the earlier forecast -0.5%.

Without the effect of excise tax and VAT changes scheduled to be introduced this July, the inflation forecast is just 2% in 2010, NBH governor Andras Simor told a press conference after the release of the forecast.

The forecast is based on a 295 HUF/EUR exchange rate, Simor said, adding that unfavourable changes compared to the February Inflation Report do not stem from exchange-rate fluctuation, which was only marginal. In accordance with the usual practice, the NBH inflation report is calculated using factual data preceding the issue date, and the April monthly average forint rate was 295.13 to the euro.

The National Bank of Hungary (NBH) expects 3.4% GDP growth and an inflation rate of 1.9% in 2011. Simor explained that accelerating growth in 2011 is attributed mainly to improving global economic conditions and could not be regarded as a sensation following two years contraction. Nevertheless the NBH forecast does not calculate with further major fiscal adjustment to effect macroeconomic developments in 2011.

The government's announced economic measures have a significant influence on the economy apart from worsening global economic outlook, Simor said.

The NBH chief said cutting expenditures will restrain domestic demand over the short-term and increase recession, but might improve the risks-assessment of the Hungarian economy over the long-term.

The NBH maintains no official opinion regarding the real-estate tax. Simor said that the 3.9% deficit target can be met as a result of announced government measures.

NBH has advocated a tax cut that would have an effect on wages and contributions, thus diminishing Hungary's competitive disadvantage.

Simor said that the NBH welcomes the revisions to Hungary's tax system.

Without tax increases next year's inflation would be under the 3% target, where the rate would level off by the second half of 2010 after the effects of this year's tax increases subside.

Simor said there is a general opinion that the supervision of financial markets should be changed. The NBH governor added that focusing on repairing system risks would require different tools of supervision than maintaining regulations. The Finance Ministry, PSZAF and NBH are currently in talks regarding possible restructuring of the supervisory system, though there has been no decision made regarding the possible merger of PSZAF into NBH. (MTI-Econews)