Central bank holds high interest rates on fears over weak currency

HungaryBudapest  - The Monetary Policy Council of Hungary's central bank announced on Monday morning that it would not be lowering its base rate from the current 9.5 per cent.

With the value of the national currency having plummeted to record lows in recent weeks, the Hungarian National Bank said on Monday afternoon that it is ready to take further action if necessary to prevent wide fluctuations in the value of the forint.

The rate was originally hiked from 8.5 to 11.5 per cent in October amid fears that currency speculators might drive the Hungarian forint into the ground. Since then the council has made four cautious cuts of half a percentage point.

The weak forint is already causing problems for ordinary Hungarians following a foreign currency credit boom over recent years.

As in other countries in the region, thousands were attracted by low-interest personal loans and mortgages denominated in foreign currencies, primarily the Swiss franc.

A weaker forint means higher monthly repayments at a time when Hungarians are already worrying about rising unemployment and government austerity measures.

The central bank said in a statement that the Hungarian economy was set to shrink by 3.5 per cent this year and by 0.5 per cent in 2010.

The ongoing financial crisis and the government's latest budget tightening measures will have a damping effect on growth in the short term, bank governor Andras Simor explained at a press conference. dpa

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