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Bonds gain after inflation rises less than forecast

Hungarian bonds gained after a government report showed consumer prices rose less than expected in September, fueling speculation the central bank will cut interest rates for a 10th time this year. The core inflation measure, which strips out volatile food and fuel costs and has been used by the central bank as a reason to lower rates, fell to 1.5% from 1.7% in August, the Central Statistics Office (KSH) said today. ``The figures probably mean the chances of further rate cuts have increased and that's positive for the bond market,'' said Beat Siegentaler, senior strategist at TD Securities in London. ``There's been increasing worries the bank may not be able to cut. It seems from the inflation side there's no problem.'' The yield on Hungary's benchmark three-year bond fell 6 basis points, or 0.06 percentage point, to 6.30% as of 9:55 a.m. in Budapest. The price of the 6.5 percent securities rose 0.14 to 100.434. The yield on the benchmark 2015 bond fell 10 basis points to 6.28 %. Hungary's September annual inflation rate was 3.7%, from 3.6% in August, the statistics office said. The figure was expected at 3.8%, according to the median estimate of seven economists in a Bloomberg survey. The central bank has lowered the benchmark interest rate to 6 % in 16 steps from 12.5% in March 2004 as inflation slowed. Hungary's rate is still the highest among the 25 nations in the European Union.