The National Bank of Hungary's Monetary Council voted 6:1 to keep the base rate on hold at 5.25pc at a rate-setting meeting on June 21, the condensed minutes of the meeting published on Wednesday show. The only other option put for vote was a 25bp reduction.

Central bank governor Andras Simor, together with deputy governors Ferenc Karvalits and Julia Kiraly, and Peter Bihari, Csaba Csaki and Judit Nemenyi voted to keep the rate on hold. Tamas Banfi voted to reduce the rate by 25bp.

This was the second consecutive rate-setting meeting when the Concil kept the base rate on hold after a long cycle of rate cuts started last July.

"Monetary Council members agreed that the mid-term macroeconomic outlook continues to suggest an inflationary curve around the central bank's target, however, there were risks to that curve", according to the minutes of the meeting. "A further easing of monetary conditions is primarily limited at the moment by a deterioration of the perceptions of risks," the minutes add. "Monetary Council members were divided, however, as to the risks to the inflationary outlook and the persistence of the unfavourable risk perception," the Council said.

"Council members agreed that the government's measures affecting centrally-regulated prices might have an overall neutral impact on inflation; while possibly slowing inflation over the short term, the measures could create inflationary pressures on the horizon relevant for monetary policy.

Members were divided over the assessment of the latest inflation data. Some thought that the trend inflation indicators and favourable industrial goods data suggested a reduction of upside risks to inflation since May. Others, however, judged last month's jump in services prices and the widening in the gap between manufacturing and service sector wage indices to be bad news for the inflation outlook," the minutes said.

"Council members highlighted the deterioration in perceptions of the risks facing the region and the European Union as a whole as the most important factor affecting the current policy decision. In Europe, recent rises in risk premia may have been caused mainly by sovereign debt problems of Southern European countries. Communications by senior government party officials had also had an adverse impact on investor sentiment towards Hungary, which was only partly offset by the government's announcement that it would remain committed to meeting the fiscal deficit target," the minutes added.

"Council members agreed that market uncertainty could remain until full details of the government's programme covering the entire spectrum of economic activity were established."

"The majority of Council members agreed that the introduction of a flat rate personal income tax might help simplify the tax system and might have a positive effect on the willingness to pay tax and the country's competitiveness," the minutes said.

Commenting on the government'splan to impose a levy on banks, several members noted "that, unlike the experience in other countries, its purpose would be to raise additional revenue for the budget rather than to generate reserves for resolving potential future crises. Furthermore, the amount the government expected to collect from domestic banks through the levy was substantially higher than through schemes already implemented or considered elsewhere. Several members pointed out that the introduction of the bank tax might have an adverse impact on investor sentiment towards Hungary, and might also affect negatively foreign parent banks' willingness to provide funding to their Hungarian subsidiaries, thereby potentially leading to a narrowing of the credit supply," the minutes of the meeting said.