Hungary leaves base interest rate unchanged at 5¼%

By Richard Connell

New York, Aug. 23 - The Monetary Council of the Magyar Nemzeti Bank left its central bank base rate at 5¼% at its meeting on Monday, according to a news release issued by the bank.

The council of the Hungarian central bank stated that it felt the economy of Hungary may begin to emerge from recession in 2010, although stating that output is expected to remain below potential for the forecast period.

The council noted that stronger-than-expected external demand has been the main source of growth to the economy but pointed out that domestic demand remains weak and unemployment remains high.

The council pointed out that despite the downward pressure due to the weak domestic demand, the risk that the inflation target of 3% will not be met has increased, due to weakness in the forint and higher food and commodity prices.

Additionally, the council noted that while global risk appetite has increased, Hungary's risk premium has not fallen significantly in recent months.

While holding the interest rate at 5¼%, the council hinted that if inflation risks remain or the risk perceptions regarding Hungary continue, an increase in the base rate would be forthcoming.

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