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Monetary Council leaves base rate unchanged - extended

The Monetary Council of the National Bank of Hungary (MNB) decided to leave the central bank base rate, which is equal to the bank's two-week deposit rate, unchanged at to 8% at a rate-setting meeting on Monday, the MNB announced.

The market was divided and expected the Monetary Council either to decide on a 25bp hike or to leave rates unchanged.
The Monetary Council said early in July it planned to gradually increase rates to bring inflation in line with its midterm inflation target of 3% by 2008, as well as to prevent a temporary pickup of inflation resulting from tax hikes in a government austerity package raising inflationary expectations.
The Monetary Council has raised the base rate at each of its monthly rate-setting meetings since June, increasing it 25bp on June 20, 50bp on July 25, 50bp on August 29 and 50bp on September 25.
Before the series of rate rises began, the rate had been unchanged at 6% since September 20, 2005.

In related news, the MNB lowered its inflation forecast to 6.9% for next year and 4.1% for 2008 in its quarterly report on inflation published on Monday. The central bank expects the rate of inflation to stand at 3.9% this year. The core inflation, namely the rate of inflation disregarding seasonal effects, is forecast to amount to 2.4% in 2006, 6.1% next year and 4% in 2008.