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Hungary central bank holds rate at 7.50%

In line with analysts’ expectations, the National Bank of Hungary (MNB) has on Monday left its reference rate on hold at 7.50%.

The Monetary Council has cut the base rate only twice this year by a total of 50 basis points, mainly over mounting inflation risks. The interest rate had topped out at 8% in October 2006 as the central bank fought the effects of rising inflation, brought on by government austerity measures. The bank began cutting again last June as inflation fell away from a peak of 9%, but it has been cautious as inflation started to climb again. Inflation ticked up to 7.1% in November on the back of rising food and fuel prices.

Today’s rate decision does not in itself change much in terms of monetary policy in Hungary, but looking ahead we would expect the MNB to adjust monetary policy and we might see the MNB getting rid of its FX fluctuation band (or adjusting the band) during 2008 and at the same time maintaining its inflation target. There is no good argument for maintaining the band as Hungary’s euro adoption has been put off until well into the next decade says Danske Bank’s Lars Christensen.(Gazdasági Rádió,