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Breakdown of IMF talks weigh at July rate-setting meeting, minutes show

The suspension of talks between Hungary and delegations from the IMF and EU on the country's financial market support package was a big consideration when the Monetary Council of the National Bank of Hungary decided to keep rates on hold at a meeting on July 19, the condensed minutes of the meeting published on Wednesday show.

“Monetary Council members agreed that the suspension of the review of the joint IMF/EU loan agreement with Hungary had an adverse impact on perceptions of the risks associated with the economy, but felt that more time was needed to judge how long this tendency would last,” the minutes said. “Monetary Council members agreed that in the absence of an agreement with the international organizations the country’s ability to obtain financing might decline. In discussing interest rate policy issues, the large majority of members preferred to adopt a wait-and-see attitude, as more time was needed to assess the market reaction to the postponement of the loan review.”

At a press conference after the meeting, central bank governor András Simor said the decision to keep rates on hold was unanimous.

The Council kept rates on hold at the last three of its monthly rate-setting meetings following a campaign of cuts started a year ago that shaved 425bp of the base rate, bringing it to a record low.

In a statement published after the meeting, the Council said it “noted with regret that the IMF and EU had postponed the conclusion of their review because the government needed more time to put together a consistent program based on structural reforms that would improve persistent fiscal sustainability and be in line with recommendations under the excessive deficit procedure as well as the convergence program.”

Simor said the suspension of the talks did no good for Hungary's risk assessment. (MTI-Econews)