Page last updated at 11:32 GMT, Wednesday, 22 October 2008 12:32 UK

Hungary in surprise rate increase

Man cycling over Megyeri Bridge
Fears exist about the impact of the credit crisis on the Hungarian economy

Hungary's central bank has raised interest rates by three percentage points to counter a sharp fall in the value of its currency, the forint.

The emergency move, which took bank rates to 11.5%, successfully boosted the forint, but analysts doubted the effects would last very long.

The currency has suffered as investors have pulled out of forint assets amid worries over its banking system.

Hungary is currently in talks with the International Monetary Fund.

The move surprised the markets, as the bank had said on Monday that it was keeping interest rates steady.

One market strategist told Reuters that the move meant bad news for the Hungarian economy.

"There is pretty much no chance of getting any reasonable economic growth out of Hungary in 2009," said Nigel Rendell, emerging market strategist at Royal Bank of Canada.

Last week, Hungary sought help from the European Central Bank and opened talks with the IMF because of a weakening financial outlook.

Credit rating agency Fitch last week downgraded its forecast for the country from stable to negative.

Analysts believe a package with the IMF is very close to being finalised.


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