Hungary's Central Bank Governor Faces Parliamentary Hearing on Interest Rates

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Hungary's Central Bank Governor Faces Parliamentary Hearing on Interest Rates

The governor of Hungary's central bank Andras Simor will be called before a parliamentary committee after the bank increased interest rates to their highest level in over three years yesterday, the Thomson Financial reports.

'It is becoming increasingly evident that the central bank's increase in the base rate is seriously affecting Hungary's budget,' said Mihaly Varga, chairman of parliament's budget committee, and a former finance minister.

'Interest payments on state debt are growing, and the Hungarian economy is in an increasingly difficult position,' he added in a statement published by his centre-right opposition party Fidesz.

A committee member nominated by the socialist government backed up Varga. Albert Molnar said the decision was 'damaging, expensive, and unnecessary,' according to press reports. He added he would support Varga's initiative.

On Monday the central bank increased the base rate 25 basis points to 8.50 percent, its highest level for more than three years, as it aims to head-off risks of lasting inflation in the economy of 10 million.

The bank has now increased interest rates 100 basis points in the last three months and says it will hike them again if inflation stays high. Last month inflation was 6.6 percent compared to the bank's goal of 3 percent.

Several leading politicians have also voiced concerns over Hungary's high interest rates, which they say are pushing up the value of the forint currency and hitting exports, the sole motor of Hungary's meagre growth.

Hungary's economy grew at just over 1 percent last year, its lowest level in 10 years, after tax hikes and subsidy cuts aimed at reducing the highest budget deficit in the European Union hit the central European country.

Growth in neighbouring Slovakia last year was 14 percent while in Poland and the Czech Republic it was around 6 percent.

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