Hungary to cut main rate to record low to fight recession

EU

Hungary’s central bank will probably cut the benchmark interest rate for a seventh month to a record low as policy makers look to fight the country’s recession at President András Simor’s final meeting on borrowing costs, Bloomberg said. The National Bank of Hungary (MNB) will reduce the two-week deposit rate by a quarter-point to 5.25%, matching the level from April to October 2010, according to all 26 economists in a Bloomberg survey. The decision will be announced at 2 p.m. today in Budapest. Simor will hold a news conference at 3 p.m. Hungary slipped deeper into recession in the fourth quarter as the fading effect of higher taxes slowed prices increases, boosting policy makers’ case to continue cutting the European Union’s highest benchmark rate. Simor and his two deputies have opposed the easing, citing the need to fight inflation that’s faster than the central bank’s 3% target. Prime Minister Viktor Orban has said he will name Simor’s successor on March 1. “The weak GDP and industrial-output data and slowing inflation all point in the direction of rate cuts,” K&H Alapkezelő, the Budapest-based fund management unit of KBC Groep NV (KBC), which manages $3.5 billion, said in an e-mail yesterday. The forint has gained 1.4% since dropping to a more than seven-month low against the euro on Jan. 28. It traded at 293.96 at 5:29 p.m. yesterday in Budapest. Eastern European central banks are easing policy to boost their economies, weakened by their biggest trading partner, the debt-stricken euro area. Poland lowered its main rate by a quarter-point to 3.75% on Feb. 6, the fourth straight cut. The Ceska Narodni Banka has left the two-week repurchase rate at 0.05% since November, keeping it almost three- quarters of a%age point below the euro-area benchmark.

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