20 March 2006

At its meeting on 20 March 2006, the Monetary Council considered the latest economic and monetary developments and left the central bank base rate unchanged at 6.00%.

Macroeconomic data released in recent weeks have reinforced the Council’s overall assessment of domestic economic performance: economic prospects continue to be favourable both abroad and at home. Although the tax cuts early in 2006 have resulted in a smaller-than-expected fall in prices and, therefore, annual consumer price inflation may turn out higher in 2006 than expected earlier, recent data on wages and consumer prices as well as disinflation of market services prices which started in the early months of the year have not, overall, changed the favourable medium-term outlook for inflation.

There was a marked change in international capital markets in March relative to earlier periods. Signs of tighter monetary conditions became prevalent in developed countries, which also weighed on emerging markets through the decline in investors’ willingness to take risks around the world.

In the past, the Monetary Council has on occasions drawn attention to the risks arising from a turnaround in the extremely favourable environment in international capital markets. Such risks, becoming increasingly discernible, underline the need to reduce the government budget deficit. It is by correcting economic imbalance that the effects of the unfavourable international processes can be mitigated.

The Monetary Council considers meeting the medium-term inflation target as its most important duty. Were the changes in the international capital market environment or domestic balance to have a lasting effect on the underlying factors of the outlook for inflation, the Council will take them into account in taking its decisions.

The minutes of today’s meeting will be published at 2 pm on 14 April 2006.


Monetary Council