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Central bank cuts rates 25 bps, as expected

The National Bank of Hungary (MNB) has on Monday reduced the base rate by 25 basis points to 7.50%, in line with market expectations. Hungary’s sovereign credit rating affirmed at S&P.

Analysts in a poll last week agreed that the Monetary Council would continue monetary easing following a pause in July and August. The fact that the MPC reduced the base rate indicates that the rate-setting body’s assessment of global processes has not changed in merit during the past month. Consequently, Hungary’s inflation will turn out as the MPC expected, i.e. will not be higher than the 3% target in 2009. This, coupled with an ongoing balance improvement, offers room to continue gradual monetary easing. The only things that may put a crimp in this process are developments on global capital markets, such as last month when the vote of the MPC showed a never-before-seen split (5:5) over international money market turbulence induced by woes on the subprime mortgage market.

Standard & Poor’s Ratings Services affirmed its ‘BBB+’ long-term and ‘A-2’ short-term sovereign credit ratings on the Republic of Hungary, citing sustained progress toward fiscal consolidation. (, bg)