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Jarai: rates could drop as confidence grows

The central bank's base rate can be expected to drop as confidence in the economy grows, and it could be lower than its current level by the end of the year, the head of the National Bank of Hungary (NBH) supervisory board said on Wednesday.

"I think we can expect a continuous decline of the interest rate as confidence grows in the Hungarian economy. It depends on foreign financial markets principally, but I think the interest rate could be lower by the end of the year than its current level", Zsigmond Járai said on public service radio MR1.

Járai, who served as governor of the NBH between 2001 and 2007 and prior to that finance minister in the first Orbán government from 1998 to 2001, was elected to head NBH's supervisory board in November last year.

Járai is not a member of the rate-setting Monetary Council of the NBH.

The NBH last decreased its base rate in April last year by a quarter point to a record low of 5.25%. Beginning in November last year, it raised it in three consecutive steps to the present 6.00% by the end of January.

After its latest meeting last week -- when it again maintained the current base-rate level -- the Monetary Council said that "inflation is likely to remain significantly above (the continuous target of) 3% in 2011, before falling back to around the target towards the end of next year. . . The Council judges that it may be necessary to maintain interest rates at their current level over a sustained period in order to meet the target for CPI inflation in 2012".