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National Bank of Hungary keeps rates on hold at 6.00%

The National Bank of Hungary's Monetary Council decided on Monday to keep the central bank's key rate on hold at 6.00%, in line with market expectations.

The decision marked the second time in row rate-setters left the base rate unchanged, following a tightening cycle started in November.

Speaking at a press conference after the meeting, MNB governor Andras Simor said the Council voted on one proposal and the vote was unanimous.

In a statement published after the meeting, the MNB said the Monetary Council believed inflation would exceed the target in the short term because of price shocks, but would still fall close to the 3% "price stability" target by the end of 2012 without further monetary tightening.

In the Council's assessment, the pace of economic growth could pick up over the horizon relevant to monetary policy, but it will still remain under its potential, the statement said.

"Maintaining the current interest rate level is justified as long as economic trends are in line with the basic path in the Inflation Report. In so far as arriving data show stronger pass-through from price shocks, inflationary risks could make necessary stricter monetary conditions than those at present," the statement said. "On the other hand, the slower than expected pickup in lending and the more unfavorable changes in domestic demand could justify a lower base rate," it added.

Weak domestic demand and high unemployment continue to moderate price and wage decisions, but cost shocks are still affecting the economy, according to the Council, who noted that recent rate rises have dampened the second-round effects of these cost shocks.