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Hungary CPI set to dive under 4%, rate cut still on, City says

Hungary’s year-on-year headline consumer inflation is likely to have taken a dive below 4% last month after the 4.2% reading in November, and the MNB (central bank) is still likely opt for a 50bps cut in its base rate next Monday despite the recent exchange rate volatility in the forint, London-based emerging markets analysts have said.

Polled by Econews in London, analysts at nine major City-based investment and research institutions - UBS, Credit Suisse, HSBC, 4cast, Dresdner Kleinwort, Goldman Sachs, Merrill Lynch, JP Morgan, Barclays Capital - ranged from 3.3% to 3.8% in their forecasts, with 3.5% being a typical expectation and the forecasts averaging at 3.57%.

Asked about the possible monetary response, the majority of the analysts said they still saw the chances skewed in favor of a 50bps rate cut at the Monetary Council’s next meeting on Monday even with the recent forint weakness in mind.

UBS said that "collapsing economic growth" and the pronounced drop in headline inflation should allow the MNB to quickly reduce the roughly 6% real interest rate, but elevated risk premiums and some still existing uncertainty about external funding could still narrow the room for monetary policy maneuver.

It said it expects the MPC to cut rates by 50bps to 9.50% on 19 January and then to lower rates to 8.50% by mid-2009. The risk in the short-run is for faster rate cuts, but a bounce-back in risk aversion could slow down or halt monetary easing, UBS’ London-based analysts said. (MTI-Econews)