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Eurozone woes weigh on Hungary monetary policy

Analysis

Ongoing concerns about a solution to the eurozone’s debt crisis are likely to affect the Hungarian central bank's monetary policy decisions in the coming months, The Wall Street Journal reported quoting Hungary's Monetary Policy Council.

“The most important risk factor affecting Hungary in the short run is a possible prolonged eurozone debt crisis,” National Bank of Hungary Governor András Simor said at a press conference.

Future rate decisions will from now on also be influenced by the ability of European Union decision makers to find a solution to the euro-area crisis, a release published by the MPC showed. This would decrease overall risk aversion and improve the external risk assessment of Hungary, a factor in monetary policy.

As a result of the comments some economists adjusted their rate forecasts. Nomura economist Peter Attard Montalto said the MPC comments show the sensitive balance between factors for and against rate movements “could well be tipped in favour of rate cuts in the near future.” He sees room for rate cuts toward the end 2011.

Yet others, such as Erste Bank economist Zoltán Árokszállási, still expect the central bank to wait until next year with cutting interest rates, saying this would also decrease interest rate differentials favoring the forint.

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