25 February 2008

In agreement with the Government, the Monetary Council decided to abandon the flexible peg of the forint to the euro within a fluctuation band and to adopt a floating exchange rate regime, with effect from 26 February 2008.

The primary objective of the Magyar Nemzeti Bank is to deliver and maintain price stability in the long run. Under an inflation targeting regime, the central bank reacts to inflationary pressures that may arise from a wide range of developments in the economy and financial markets. Limiting exchange rate fluctuations in an inflation targeting regime does not contribute to firmly anchoring long-term inflation expectations.

The abandonment of the peg constitutes a step toward the adoption of the euro in Hungary. A floating exchange rate regime provides the central bank with better conditions to achieve its inflation target and, through this, to meet the nominal convergence criteria and finally to enter into ERM II.

Due to the openness of the Hungarian economy, the exchange rate will continue to play an important role in influencing developments in inflation. If other developments in the economy do not have a countervailing force, sustained and significant movements in the nominal exchange rate will be reflected in the Bank’s inflation projections and will be a factor driving the conduct of monetary policy.