The MNB’s monetary council found that inflation forecasts based on the macroeconomic processes in the past month show positive developments. In its latest inflation report issued in February the MNB put the annual rate of inflation to 3.6% by the end of 2005 and 3.4% by the end of 2006.
 
Despite the optimistic expectations, the central bank’s latest basic rate cut was recently the smallest. In January the MNB cut the basic rate by 50 basis points, then by 75 basis points in February and by 50 basis points again in March. The central bank explained its cautious move this time by the recent lack of improvement in the internal balance of the economy and by its concern that the positive international investment climate affecting Hungary until recently might start to deteriorate.

The exchange rate of the Hungarian forint did not react to the basic rate cut. A slight strengthening of the forint on Tuesday was explained by the pulling force of the appreciation of Central East European currencies, especially the Polish zloty.