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Hungarian central bank seen keeping rates on hold

The National Bank of Hungary (MNB) is expected to keep interest rates on hold on at 8.5% for the third month running when it meets next Monday, a Reuters poll of analysts showed on Friday.

The bank, which earlier this year hiked interest rates by a total of 100 basis points, will watch inflation trends and cut rates late this year or early next year, the analysts said. In the poll conducted between August 18 and 21, all 19 analysts surveyed said the MNB’s base rate would remain at 8.5% on Monday, when the bank will also publish its quarterly inflation report.

Annual inflation was slightly higher than expected at 6.7% in July. June gross wages rose by 9.7%, more than expected, but a firmer forint and lower crude prices have cut inflation risks in the past months, analysts said. In the past month currencies in central Europe gave up some of the year’s strong gains, but an economic slowdown in the region and its western European trading partners is cutting inflation pressure and softens central bank rhetoric, Reuters note.

The MNB is unlikely to rush to cut, but the poll showed that an increasing number of analysts expect the first reduction to come late this year rather than in 2009.

The analysts’ median forecast put the level of the base rate to 8.38% for the end of 2008, implying a possible 25 basis point cut, down from 8.5% in a poll last month. Their projection for the end of 2009 fell to 7.13% from 7.38%.

The analysts also reduced their median forecast for average inflation in 2010, the MNB’s main target horizon, by 15 basis points to 3.05%, close to the bank’s 3% target. But it will take months for the MNB to deliver its first cut as the forint may retreat, crude prices may rise, wage growth is sticky and political risks remain significant as the minority government launches talks about the 2009 budget, analysts said. (MTI-Econews)