Hungary's central bank on Tuesday kept its main interest rate unchanged at 7.0 percent for the sixth month running, citing a high rate of inflation and uncertainty about the global economy.
The monetary council "discussed two options: lowering by 25 basis points or keeping the rate on hold, but keeping it on hold won a convincing majority," central bank head Andras Simor told a news conference in Budapest.
The decision not to lower borrowing costs, a move that was in line with market expectations, was because of "risks from the international environment" and "high" inflation, expected to average 5.3 percent in 2012, Simor said.
Last year, rising inflation and a sharp depreciation of Hungary's currency, the forint, prompted the central bank to increase rates sharply but they have been on hold since December 21, 2011.
The economy remains in trouble, however, with growth in Hungary contracting 1.2 percent in the first quarter, unemployment at 11.5 percent and the currency still weak despite a recent modest recovery.
Hungary is seeking a standby credit line of up to 20 billion euros ($24.9 billion) from the International Monetary Fund and the European Union, of which it is a member.
Talks have snagged on EU and IMF objections to a raft of new legislation from Prime Minister Viktor Orban that critics say is reducing the independence of key institutions including the judiciary, the media and the central bank.
Legislation on the central bank, which had threatened to increase government control on the setting of interest rates, is however being adjusted, meaning it should no longer be a "hindrance" to the start of aid talks, Simor said Tuesday.
