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Járai says Hungary must raise main rate to fight inflation

Hungary's central bank must further increase the benchmark interest rate, the highest in the European Union at 7.25%, to meet the 2008 inflation target, bank President Zsigmond Járai said. His personal opinion was that the country has to tighten monetary conditions to reach the inflationary goal, he pointed in an interview in Singapore yesterday. The inflation goal is 3% at the end of 2008, but he said it seems very difficult to achieve that. Hungary raised the rate three times this year on concern tax increases and higher regulated prices will keep inflation above target beyond the end of 2008. Policy makers will next meet to discuss rates on Sept. 25. They unanimously voted on Aug. 28 to raise the benchmark two-week deposit rate to 7.25% from 6.75%. The bank has raised the rate from 6% in June. The bank expects the annual inflation rate to be 4.2% at the end of 2008, slowing from 7% next year. The government is raising taxes and the price of electricity, natural gas, medicines and public transport to tackle the EU's largest budget deficit. The measures help lower the shortfall, though higher taxes may also slow economic growth and make Hungary less competitive in Járai’s opinion. “The budget deficit next year will be substantially lower, 6 to 7% instead of over 10% this year,” he said in the interview. This is a great achievement. It's a short term solution to cut the budget deficit. (Bloomberg)