Analysts were surprised that the National Bank of Hungary (NBH) elected to cut key-interest by only 25 basis points to 6.25pc on Monday afternoon.
The NBH had been widely expected to cut interest rates by 50 basis points.
Zoltan Adam of Takarekbank attributed the National Bank of Hungary’s unexpectedly cautious rate-cut to the turbulence of the money markets over recent weeks, adding, however, that he still expects the NBH to cut the key-rate to 5.5pc by the middle of 2010. Mr Adam told MTI Hungary’s low inflation would support further rate reductions, though deemed uncertain the possible effect of national elections expected to take place in the spring on the National Bank of Hungary’s future rate-decisions.
Gyorgy Barta of CIB Bank also ascribed the NBH’s surprising Monday-afternoon rate-decision to the weakening and volatility of the forint, noting that rising CDS premiums and government-bond yields also played a role in the bank’s decision to cut key-interest by only 25 basis points.
Mr Barta commented that political controversy surrounding the government’s 2010 budget has raised the risks connected to fiscal relaxation.
The CIB Bank analyst predicted that the NBH would likely make one or two more 25-basis-point rate cuts, bringing key-interest to its lowest point ever in the first quarter of 2010.
Gyorgy Barta cautioned, however, that the National Bank of Hungary may decide to temporarily halt the current rate-cutting cycle if money-market conditions continue to deteriorate.