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National Bank of Hungary raises key rate to 7%

EU

The National Bank of Hungary’s Monetary Council decided to raise the central bank’s key rate by 50bp to 7.00% at a meeting on Tuesday.

The decision was in line with expectations and followed another 50bp rate rise in November that came days after Moody’s downgraded Hungary’s sovereign rating to "junk". The tightening in November was the first rate change in ten months.

Speaking at a press conference after the meeting, MNB governor Andras Simor said a proposal for a 25bp rate rise was made in addition to the one for a 50bp increase. A "significant majority" of Council members voted for the 50bp increase, he added.

In a statement published after the meeting, the Council said the decision to raise the base rate by 50bp was taken "in view of increased perceptions of the risks associated with the economy and upside risks to inflation". "If risk perceptions and the outlook for inflation deteriorate significantly further, it may prove necessary to raise interest rates again," it added.

Mr Simor said the bank’s staff had raised the average annual inflation projection for 2012 in the fresh quarterly Inflation Report, to be published on Thursday, to 5.0% from 4.7% in the previous report published in September.

The Council said inflation could be brought back to the 3% mid-term "price stability" target "by early 2013 by maintaining a tight monetary policy".

The condensed minutes of the meeting will be published at 2pm on January 11, 2012.

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