20 October 2008

At its meeting on 20 October 2008, the Monetary Council reviewed the latest economic and financial developments and left the central bank base rate unchanged at 8.50%.

In the Council’s judgement, the prospects for the Hungarian economy are shaped primarily by global factors. In recent weeks, the effects of the global financial crisis have become increasingly evident in the domestic financial markets.

The global liquidity shortage has led to disturbances in markets. In the situation, maintaining the smooth functioning of financial intermediation is of key importance for the Monetary Council. To achieve this goal, the Magyar Nemzeti Bank has taken or initiated several important policy actions in recent weeks.

Reviewing the latest economic developments, the Council has concluded that inflation may fall further, continuing the trends of the past few weeks. However, the slowdown in global business activity has led a to a deterioration in the outlook for growth in Hungary. The expected international economic developments increase the probability of a sustained fall in oil, food and other commodity prices. In addition, the slowing in Hungarian growth, stemming from the economic downturn in Europe and the curtailment of lending by domestic banks, is also likely to help reduce inflation further in Hungary.

In the Council’s judgement, therefore, maintaining tight monetary conditions is necessary in the current market environment.

The abridged minutes of today’s meeting will be published at 2 p.m. on 14 November 2008.