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Press release on the Monetary Council’s meeting of 3 July 2006

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3 July 2006

At its meeting on 3 July 2006, the Monetary Council considered the latest financial market developments. As questions have recently been raised about the inflation target of monetary policy, the Council attaches particular importance to stating explicitly that its medium-term policy objective, set in agreement with the Government, remains to achieve and maintain an inflation rate of 3%, believed to be consistent with price stability.

In the Council’s view, the set of fiscal measures, announced by the Government in the past few weeks, will make a strong contribution to restoring Hungary’s domestic and external balance which has been upset recently. The contractionary effects of these measures on demand are expected to mitigate the medium-term risks to inflation; however, they will put considerable upward pressure on prices in 2007. The Monetary Council clearly aims to prevent a temporary rise in inflation from feeding through to economic agents’ inflation expectations and to ensure that inflation reverts to the 3% target in 2008.

By raising the base rate gradually, the Monetary Council’s intention is to create monetary conditions which will help inflation to return to 3%, a level compatible with price stability.

MAGYAR NEMZETI BANK

Monetary Council