Hungary Monetary Policy


Hungary: Central Bank raises interest rates for third consecutive month

January 24, 2011

At its latest monetary policy meeting on 24 January, the Central Bank raised the base rate by 25 basis points from 5.75% to 6.00%, in a decision broadly expected by the market. The rate hike is an attempt to control rising inflation and followed on similar hikes approved in November and December last year. The Bank acknowledged that inflation is expected to remain ?considerably above the Bank's 3% target in the coming quarters, due to significant cost-push shocks hitting the economy?, which include the recently approved windfall tax on the energy, telecommunications and retail sectors. Moreover, the Bank stated that there is a risk of inflation expectations rising as a result of a prolonged period of above-target inflation, which would cause the cost shocks to have ?second-round inflationary effects?. The Central Bank projects inflation to end the year at 3.8%, which is above its 3.0% inflation target (+/- 1.0% tolerance margin).


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