of that we, central bankers are interested in limiting currency mismatches in the balance sheet of domestic market participants. one can also look at fx borrowing of the unhedged domestic agents as the mirror image of the well - known convergence play, when foreigners invest in assets denominated in local currency. the only constraint of this convergence play is the risk absorption capacity of the borrowers. magyar nemzeti bank supports responsible lending and borrowing behavior that targets to increase the risk absorption capacity of borrowers. i am sure we still have to discuss the role of fx loans in more detail in the future. however, i am convinced that an overly simplified view, emphasizing only type of risks, would not lead us towards a consensus view and would help little in guiding future policy measures. finally let me say a few words about the events of the most recent months and touch briefly on future challenges we are facing. summer brought favourable developments in various dimensions. global risk aversion eased significantly, thanks mainly to the well coordinated fiscal and monetary measures of developed countries. this was obviously a very welcome phenomenon for hungary. it helped the currency to appreciate by more than 10 % compared to the levels in spring, and also contributed to the significant drop of domestic bond yields, even at longer maturity. i consider the functioning of the government securities market to be a key indicator of market perception on fiscal sustainability. in this regard, it was particularly favorable that, following a long pause, the government was also able to issue long maturity bonds in forints. while the imf / eu package provides reliable source of financing, the ultimate goal is obviously to return to market financing, preferably in forints. therefore we not only have to present sound and credible fiscal consolidation measures to the international institutions for approval, we also have to make sure that market participants find the fiscal path credible. last, but not least, the return of market confidence gave the magyar nemzeti bank the room to start reducing the key interest rates. further positive news was coming from price developments. ex ante there were wellgrounded concerns about the inflation impact of the large vat hike, a crucial part of the fiscal tightening measures. central banks never welcome any administrative increase in the price level, there is always the risk that a part of the one - off increase will lead to more permanent inflation pressure. this was especially a pronounced concern in hungary given our less than satisfying track record of meeting the inflation targets. while it

is obviously too early to say the final judgments, july and august cpi data indicate that vat increase is reflected in the prices to a smaller degree than previously expected, and, probably more importantly, there is no sign that underlying inflation trend would have accelerated due to the tax increase. i find it important to emphasize in this context that monetary easing in hungary is also conditional on the evolution of global risk appetite. we have learned during the crisis that risk premia can be extremely volatile. it is therefore essential to have a robust strategy, to be prepared to cope with potential unfavorable shifts in risk perception. to this end the monetary council has decided to follow a gradual approach in reducing the interest rate. despite of the dominance of good news of the last few months becoming complacent at the current juncture would be a great mistake. we are perfectly aware that still a lot has to be done in hungary to finally reach a sound, sustainable fiscal and external position, characterized by dynamic growth and low inflation and well functioning financial sector. monetary policy of the magyar nemzeti bank has a clear objective : price stability. this does not mean that we are narrowly looking only at inflation forecasts, but rather, in a broader context, we want to contribute to longer term predictability in the hungarian economy. i am convinced that price stability cannot be attained and maintained without longer term predictability. to this end we will be focusing on managing risks to stability and sustainability, risks that we expect to be with us for a protracted period of time. thank you for your attention!