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Press release on the Monetary Council’s meeting of 22 December 2008

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22 December 2008

At its meeting on 22 December 2008, the Monetary Council reviewed the latest economic and financial developments and voted to reduce the central bank base rate by 50 basis points, from 10,5% to 10,0%, with effect from 23 December 2008.

The Monetary Council continues to be of the view that inflation may to fall further, in line with the trend of recent months, and it may drop significantly below the 3% target on the horizon relevant for monetary policy. The slowdown in global economic activity has led to a deterioration in the prospects for growth of the domestic economy. Consequently, the economy may recover only slowly in 2010, following the downturn expected in 2009.

Monetary policy should continue to pay attention to preserving the stability of the financial intermediary system and to ensuring that capital flows remain balanced, in addition to focusing on inflation and real economic performance. Following the sharp deterioration in sentiment about Hungary in October, risks associated with external financing have recently declined gradually. But even allowing for these factors, there remains limited room for monetary policy manoeuvre.

The recent negative developments in the international environment may act to change the conditions for access to external financing of the Hungarian economy for a protracted period. Global risk tolerance may remain below pre-crisis levels over the longer term, which makes it necessary for domestic economic agents to adjust, and to reduce the gap between costs and incomes on a sustained basis, in particular.

The Monetary Council took its decision to ease policy further consistent with the projections of an economic slowdown and a sharp decline in inflation. The base rate may be reduced further in the coming months, if capital flows remain undisturbed and the stability of the financial intermediary system is preserved.

The abridged minutes of today’s meeting will be published at 2 p.m. on 9 January 2009.

MAGYAR NEMZETI BANK

Monetary Council