Hungary's central bank on Tuesday kept its main interest rate on hold at 7.0 percent for the seventh month running because of worries about high inflation, a move in line with most economists' expectations.
"Inflation will not fall below three percent in 2014, this will happen only in 2014," central bank head Andras Simor said, adding that the "volatile and risky" global economic environment also called for "prudent" monetary policy.
Some analysts had expected a cut of 25 basis points to 6.75 percent and the central bank said that such a move was discussed on Tuesday but that a majority of board members were in favour of leaving borrowing costs steady.
Last year, price rises 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 a hike on December 21, 2011. The last cut was in April 2010.
The economy remains wobbly, meanwhile, with growth in Hungary contracting in the first quarter, unemployment at over 11 percent, and the forint still weak despite a recent modest recovery.
The country's borrowing costs remain high as well, with nervous investors demanding an interest rate of almost eight percent on new issues of 10-year sovereign debt, a rate that is unsustainable in the long term.
On Wednesday a team from the International Monetary Fund and the European Union were due to wrap up a talks about Hungary's request for a stand-by credit line of around 15 billion euros ($18 billion).
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.