"Negative surprise"

The Monetary Council of the Hungarian National Bank (MNB) increased its base rate from 9.5 percent to 12.5 percent on 28 November, the same day that the national currency had weakened to 270 forints to the euro, Hungarian dailies and the central bank's website (http://www.mnb.hu) reported. After the MNB's move, which was supported by Finance Minister Csaba Laszlo, the forint strengthened to 263 to the euro. Governor Zsigmond Jarai told Hungarian radio on 29 November that the central bank took the decision to assure foreign investors that its 2005 inflation target of 4 percent will be met. The rise in Hungary's current-account deficit has caused uncertainty among foreign investors, Jarai explained. He did not rule out the bank reducing its base rate again within a few months. Hungarian Banking Association Chairman Rezso Nyers told the MTI news agency that banks were shocked by the "negative surprise," while the Financial Research Institute's Judit Nemenyi warned that overvaluing the forint would further increase the deficit, not reduce it.