Hungary: Central Bank leaves rates unchanged in May
May 29, 2012
At its 29 May monetary policy meeting, the Central Bank left the base rate unchanged at 7.00%, in line with market expectations. The Bank last changed interest rates in December 2011, when it announced a 50 basis-point increase. According to the Central Bank, short-term prospects for the Hungarian economy are bleak, as GDP is expected to continue growing below its potential going forward. In addition, the Bank urged the government to reach an agreement with the EU and the IMF, which would reduce the risks associated with the economy. Regarding price developments, policymakers stated that inflation will continue on its upward path and is expected to rise significantly, driven by increases in VAT and a weaker forint, among other factors. Monetary authorities stated that the volatile risk environment and inflation running above target for an extended period continue to warrant a cautious policy stance. Moreover, the Bank stressed that it will make every effort to ensure that the measures announced by the government do not contribute to medium-term inflationary pressure and inflation returns to levels consistent with the Bank's medium-term inflation target.