Hungary leaves base rate unchanged at 7% due to weak prospects

By Tali David

Minneapolis, May 29 - The Monetary Council of the Magyar Nemzeti Bank left its base rate unchanged at 7% at its meeting Tuesday, according to a press release.

The council of the Hungarian central bank said that the near-term prospects of the Hungarian economy are weak, with growth only expected to resume in 2013. The level of output will remain below its potential in the period ahead.

The council noted that despite subdued domestic demand and the degree of slack in the labor market, the consumer price index is expected to remain elevated over the next few quarters, reflecting the effects of the tax changes and cost shocks.

Domestic inflation is likely to jump next year due to the increases in VAT and excise duties as well as by the depreciation of the forint exchange rate in the second half of 2011 and the rise in oil prices in early 2012, the bank said.

The bank also said an escalation of concerns over the sustainability of sovereign debt in some euro-area countries may adversely affect premia on Hungarian financial assets.

The abridged minutes of the council meeting will be published on June 13.

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