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Central bank expected to raise rates

Analysis

Hungarian government bond and currency traders expect the central bank to hike interest rates by 25 basis point to 8.50% on Monday, a Reuters poll showed.

In a poll of 23 traders, 13 saw a 25 points hike and 10 said the bank would keep rates unchanged after hikes totaling 75 basis points since March.

It was mainly forex dealers who expect unchanged rates. Seven out of the 11 who took part in the poll expected unchanged rates and four saw a quarter point hike.

Nine of the 12 government bond traders in the poll saw a 25 basis point hike and three saw no change.

All 11 forex dealers expected the forint to strengthen to 240 to the euro, its ceiling in the band, by the end of May. The forint surged to three year highs at 242.40 to the euro on Wednesday as options built around the ceiling of the currency's trading band, which was abandoned three months ago, were knocked out.

Last month the central bank lifted rates by 25 basis points, after a half percentage point hike in March to defend its three percent medium-term inflation target.

In tandem with the rate decision, the bank will issue its quarterly inflation report which is expected to show an increase in its key medium-term 2009 inflation forecast from 3.6%, although that report will likely be based on forint rates from last month, around 253 to the euro, traders said.

The 3.6% projection is above the 3.0% level which the central bank says it targets with rate policy and which it has vowed to defend.

But the strength of the forint, which has firmed 4% against the euro since the last rate meeting in April, could give some rate setters pause for thought, some dealers said. (MTI - Econews)

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