21 Dec 2011

Bank rate raised again

12:05 pm on 21 December 2011

The Hungarian National Bank has increased interest rates for the second consecutive month, from 6.5% to 7%.

Hungary is trying to negotiate an aid package from the International Monetary Fund and the European Union.

Last week, informal talks were cut short over worries about the independence of the central bank.

The BBC reports Hungary is seeking a standby credit line of 15 - 20 billion euros ($US19.5 billion) from the IMF and EU in case it runs into trouble issuing new debt.

An unorthodox economic policy has been pursued since the government of Prime Minister Viktor Orban was elected in April 2010.

In an attempt to tackle the deficit, the government has transferred private pension assets to the state and put new taxes on banks.

In November, Hungary's credit rating was downgraded to 'junk' status by Moody's.

The forint rose 1% against the euro after the latest increase in rates. The currency has fallen 12% against the euro since the middle of the year.