Hungary's Central Bank Keep Rates On Hold In July

Hungary's central bank kept its benchmark interest rate unchanged at a three-year high today as the surging forint, Europe's third-best performing currency, continued to put a cap on inflation. The Magyar Nemzeti Bank left the two-week deposit rate at 8.5 percent, the second-highest in the European Union after Romania.



The forint has gained 4.2 percent against the euro in the past month, helping control inflation that's been faster than the central bank's target for almost two years. Monetary policy makers last month left the key rate unchanged after raising it 1 percentage point since March, saying the currency can keep food and oil prices from pushing up other costs.




The Council has basically maintained its view that Hungarian economic growth has remained subdued and inflation is likely to continue falling slowly but steadily. The continuing negative output gap should help to crimp inflation over a medium term horizon all other things being equal. However the danger clearly exists that inflation expectations become stuck at a high level, as the global rises in food, commodity and energy prices maintain the upside risks to inflation.

At the moment no big surprises here. Now we need to see the Q2 2008 GDP growth numbers.