24 April 2006

At its meeting on 24 April 2006, the Monetary Council considered the latest economic and monetary developments and left the central bank base rate unchanged at 6.00%.

In the Council’s evaluation, there were contrasting developments in the key factors affecting the outlook for inflation in the first quarter of 2006 relative to earlier months. The fall in inflation expectations and the sharp decline in market services price inflation have recently influenced inflation prospects favourably. However, the weaker-than-earlier exchange rate and a rise in imported inflation may have offsetting effects.

The forint’s weakness in early March – if the exchange rate remains at its lower level over a sustained period – may put upward pressure on inflation on the horizon relevant for monetary policy. Risks of higher inflation have recently been exacerbated by the latest surge in the world market price of oil.

On the other hand, the March inflation figures appear to reinforce the favourable effect on the longer-term outlook of the decline in market services price inflation which has been underway since early 2006. With regard to the durability of this trend, the Monetary Council attaches particular importance to labour market participants also adjusting to the low inflation outlook.

Overall, in the Monetary Council’s judgement the balance of risks to inflation has recently moved to the upside relative to earlier periods; however, changing the interest rate level is currently not justified, due to offsetting macroeconomic effects. The Monetary Council will continue to monitor closely developments affecting inflation, and stand ready to take actions as necessary to maintain price stability.

In the aftermath of the General Election, the Monetary Council once again makes a point of emphasising that the high level of budget deficit continues to be the ultimate source of risks to Hungarian economic balance. For this reason, the new government coming to office will have to show commitment to a budgetary adjustment and, consequently, to take specific actions as soon as possible. The new government will only be able to make the largest contributions to long-term, stable economic growth, if it ensures a sustainable fiscal position by implementing a credible convergence programme.

The minutes of today’s meeting will be published at 2 pm on 12 May 2006.


Monetary Council