Hungary keeps base rate at 6% as longer-term inflation risks subside

By Susanna Moon

Chicago, March 28 - The Monetary Council of the Magyar Nemzeti Bank said it voted to leave the central bank base rate unchanged at 6% at its meeting Monday.

The bank said it expects inflation to rise considerably above its 3% target due to the cost-push shocks hitting the economy but could fall within the target by the end of next year even without further monetary tightening.

The country's economic growth is likely to pick up but the level of output will remain below potential during the forecast horizon, according to a bank press release.

Inflation will likely face pressure from opposing sides, with cost shocks on one side and weak domestic demand and high unemployment on the other.

The bank noted that the pass-through effects have been smaller than expected as loose labor conditions allow firms to work on profits through earnings growth rather than through price hikes.

The abridged minutes of Monday's meeting will be published on April 6.

At the Feb. 22 meeting, six members voted to maintain the base rate at 6% and one member voted to cut the base rate by 25 basis points. The council raised its central bank base rate by 25 bps to 6% at its meeting on Jan. 24.

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