20 December 2004

1. At its meeting on 20 December 2004, the Monetary Council considered the latest economic and financial developments and decided to reduce the central bank base rate by 50 basis points, from 10.00% to 9.50%, with effect from 21 December 2004.

Positive changes in the factors influencing inflation contributed to the Monetary Council’s decision to reduce the base rate. Consumer price inflation and core inflation have been on a downward path, according to actual data. In the Council’s assessment, the decline in inflation will continue in the near term, as reinforced by the slowdown in private sector wage increase in October. The conducive global investment environment and domestic investors’ rising demand for government securities, in addition to the positive outlook for inflation, also assisted the Council in deciding to lower the base rate. However, Hungary’s equilibrium position remains fragile. Consequently, the risks related to a potential change in the positive investment climate remain. For these reasons, the Council’s interest rate setting will continue to be characterised by caution.

The rate of consumer price inflation fell further in November. The Council sees the stable exchange rate and rising market competition as two additional factors contributing to the decline in core inflation. Declines in the prices of goods, unprocessed foods and fuels, exogenous to monetary policy, played an additional role in the fall in inflation.

Private sector wage growth, picking up speed in the early months of the year, clearly reversed direction around mid-year. In October, the rate of gross wage growth fell significantly relative to earlier months. This slowdown in wage growth suggests that the indirect tax increases at the beginning of the year have not led to a sustained rise in inflation expectations, which, in turn, may assist in the development of a conducive environment for sustained disinflation.

Third-quarter GDP data showed a slowdown in economic growth. This decline in growth was caused by a drop in household consumption growth on the demand side and by a slowdown in corporate output on the supply side in Q3.

Hungary’s sizable external imbalance and the continued rise in its foreign indebtedness remain the most major risk factors influencing economic growth and the inflation path. The achievements in bringing down inflation can only be sustained by reducing the country’s external imbalance, which, in turn, requires a substantial reduction in the general government deficit. The international investment climate continues to be positive: investors’ demand for higher-risk investment opportunities is high even by historical standards. This makes it easier for Hungary to finance its high current account deficit. However, a potential change in the current external environment may exacerbate the country’s equilibrium problems.

In the Monetary Council’s view, taking account of the outlook for inflation and money market trends, the current 50 basis point reduction in the central bank base rate will not put the 2005 and 2006 inflation targets at risk.

2. The schedule of the Monetary Council’s meetings in 2005 is as follows:

10 January 24 January 7 February 21 February 16 March (Wed.) 29 March (Tues.) 11 April 25 April 2 May 23 May 6 June 20 June 4 July 18 July 8 August 22 August 5 September 19 September 10 October 245 October 14 November 28 November 5 December 19 December

3. If possible, the Monetary Council will only take a decision on changing the central bank base rate at the second scheduled meeting in each month in 2005. Obviously, the Council may take a decision on changing the central bank base whenever circumstances warrant such a decision.

4. The dates of electronic publication of the Bank’s ‘Quarterly Report on Inflation’ in 2005 are as follows:

2 p.m., Monday, 21 February 2005,

2 p.m., Monday, 23 May 2005,

2 p.m., Monday, 22 August 2005 and

2 p.m., Monday, 28 November 2005.

The Monetary Council will issue a statement on its assessment of economic conditions simultaneously with publication of the Report.

5. The dates of publication of abridged minutes of the Council’s rate-setting meetings are as follows:

Date of meeting Publication of minutes of Council meetings Mon., 20 December 2004 2 p.m., Fri., 14 January 2005 Mon., 24 January 2005 2 p.m., Fri., 11 February 2005 Mon., 21 February 2005 2 p.m., Sat., 19 March 2005 Tues., 29 March 2005 2 p.m., Fri., 15 April 2005 Mon., 25 April 2005 2 p.m., Fri., 6 May 2005 Mon., 23 May 2005 2 p.m., Fri., 10 June 2005 Mon., 20 June 2005 2 p.m., Fri., 8 July 2005 Mon., 18 July 2005 2 p.m., Fri., 12 August 2005 Mon., 22 August 2005 2 p.m., Fri., 9 September 2005 Mon., 19 September 2005 2 p.m., Fri., 14 October 2005 Mon., 24 October 2005 2 p.m., Fri., 18 November 2005 Mon., 28 November 2005 2 p.m., Fri., 9 December 2005 Mon., 19 December 2005 2 p.m., Fri., 13 January 2006 MAGYAR NEMZETI BANK Monetary Council