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Central Bank seen keeping rates on hold on Monday

The Central Bank of Hungary (MNB) is seen keeping its base rate on hold at 8.5% at its meeting on Monday, but a 25 basis point cut is expected for the last quarter of the year, a Reuters poll showed.

All of the 19 analysts in the poll said that the bank, which earlier this year hiked rates by a total of 100 basis points, will keep them unchanged for the fourth successive month on Monday.

In the poll 11 out of 20 analysts who had made a forecast for the end of the year said that the MNB would deliver its first rate cut in the fourth quarter.

This is the first time in monthly polls this year that the majority of analysts see a rate cut coming before next year.

Hungary's economic growth prospects have deteriorated which also means that inflation pressure can be lower than expected.

“Growth prospects are weak, domestic consumption is not recovering and external demand is deteriorating further,” said Gergely Suppán of Takarékbank.

“The balance of risk between inflation and growth has shifted towards the latter. This should create room for monetary easing, given that the fiscal consolidation appears to remain on track,” Barclays Capital said in a note.

In the poll analysts cut their forecast for Hungary's economic growth to 2.6% for 2009 from 3.0% in a survey last month.

That would be only a slight pick-up from 2.15% expected for this year even though the negative impacts of tax hikes and subsidy cuts imposed by the government in 2006 and 2007 are fading.

Annual inflation, which has been stuck between 6.5% and 7.1% this year, is expected to show the first significant drop in September to 6.15% from 6.5% in August, according to the median forecast in the poll.

“The September figure which will be published in October can already open room for the MNB to cut rates, but the negative international market sentiment is an obstacle at the moment,” said Gergely Szabó Fórián, analyst at Pioneer Fund Management. (MTI – Econews)