By Central Bank News
The Hungarian Central Bank left is benchmark base rate unchanged at 7.0 percent for the sixth month in a row, as forecast, saying inflation is expected to remain above its target for a “protracted period” even if the economy is first expected to expand in 2013.
“The volatile risk environment and above-target inflation for an extended period continue to warrant a cautious policy stance,” the Monetary Council of Magyar Nemzeti Bank said in a statement.
Although inflationary pressures from the economy will remain moderate, an increase in value-added-tax and duties early this year is boosting inflation. The bank said it expected the tax measures to have a temporary effect on inflation while higher production costs for firms is expected to feed through to inflation gradually and may therefore raise inflation over a longer time period.
“But this indirect effect will be offset by falling domestic demand and slack in the labour market. Consequently, the price index is expected to fall back close to the target as the effects of increases in VAT and excise duties as well as the cost shocks wear off,” the bank said, adding:
“The Council will consider a reduction in interest rates if Hungary’s risk premium falls persistently and substantially and the outlook for inflation improves.”
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