Hungary wants to keep base rate unchanged for extended period

By Toni Weeks

San Diego, June 22 - The Monetary Council of the Magyar Nemzeti Bank said that holding interest rates at the current level for an extended period of time will help it meet its 3% target for Consumer Price Index inflation by the end of 2012, according to the bank's June edition of its quarterly report on inflation published Wednesday.

The report said that domestic inflation development continues to be shaped by the balance between intensifying cost pressures and the weakness of domestic demand. Increases in commodity prices, especially oil and food prices, will probably keep inflation elevated throughout most of 2011.

The bank expects the annual average rate of consumer price inflation to be 3.9% in 2011, but to fall back to an average of 3.6% in the subsequent year as a result of subdued domestic demand, the report said.

The bank has revised down its outlook for domestic economic growth, as compared to the March projection, and expects the level of output to remain below its potential over the next two years. Its projection for economic growth in 2011 is 2.6% and increases to 2.7% in 2012.

The bank said that measures taken by the government to improve fiscal sustainability and create conditions for longer-term growth will probably lead to a temporary slowdown in household income growth. Households will likely increase their precautionary savings due to exchange rate uncertainly stemming from sovereign debt problems within the euro area.

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