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Press release on the Monetary Council’s meeting of 20 April 2009

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20 April 2009

At its meeting on 20 April 2009, the Monetary Council reviewed the latest economic and financial developments and left the central bank base rate unchanged at 9.50%.

The Monetary Council continues to expect that the Hungarian economy will be undergoing a sharp downturn this year. Inflation may be around the 3% target on the horizon relevant for monetary policy, due in part to discipline imposed by the economic recession on pricing behaviour.

Data released over recently indicate that the outlook for economic activity in Hungary has deteriorated further. The decline in external demand and the contraction of lending led to a marked slowdown in the economy in the final quarter of 2008. The weakness of industrial production and retail sales suggests that the downturn has gathered pace. Households are adjusting to the tightening in global financial conditions and the deteriorating outlook for future incomes by curtailing consumption expenditure, which, in turn, is acting to reduce Hungary’s external financing requirement.

With the slowdown in the global and domestic economies, inflation has fallen substantially. The significant easing in services price inflation this year reflects the effects of declining demand. The weakening of the forint in the first months of the year has not yet fed through fully into tradables inflation. Inflationary pressures associated with exchange rate depreciation may become more pronounced over the period ahead, which, however, may be mitigated by declining demand.

In the past month, global willingness to take risks has increased and sentiment towards Central and Eastern Europe in previous months has not deteriorated further. However, global and domestic financial markets continue to be extremely volatile.

After considering the outlook for the real economy and inflation as well as the need to preserve the stability of the financial intermediary system, the Monetary Council decided to leave the central bank base rate unchanged.

The abridged minutes of today’s meeting will be published at 2:00 p.m. on 8 May 2009.

MAGYAR NEMZETI BANK

Monetary Council