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Wednesday, June 20, 2007

Koka Calls For End To Tight Peg

Hungarian Economy Minister Janos Koka has called for a loosening of the trading band which governs the value of the forint. He said the forint's trading limits are hobbling the central bank's ability to cut Hungary's inflation rate. He is the first Cabinet member to suggest these limits may need to be abolished, but he joins a growing chorus of economists calling for the forint to trade freely like the Polish, Czech and Slovak currencies.

Scrapping the trading band would allow the forint to strengthen enough to cut import prices and bring down the annual inflation rate, at 8.5 percent in May. Koka's comments contrast those of central bank Governor Andras Simor, who says inflation can be slowed without freeing the forint, and Finance Minister Janos Veres, who says the Cabinet is not ready to lift the limits.

The forint rose to 248.80 per euro by 1 p.m. in Budapest from 249.01 yesterday, reaching a month high. The currency is allowed to move between 240.01 and 324.71 against the euro, hampering the central bank's ability to cap consumer-price growth.

Stemming inflation, along with cutting the budget deficit from last year's record 9.2 percent of GDP, is part of conditions to qualify for euro adoption.

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