Hungarian Rate Cut May Be Followed by Two More, Capital Says

Hungarian policy makers may cut rates once or twice more even before the country obtains an aid package from the International Monetary Fund and the European Union, Capital Economics said.

The Magyar Nemzeti Bank today unexpectedly cut the benchmark two-week deposit rate by 25 basis points to 6.75 percent, lowering it for the first time since April 2010 after the economy slipped into a recession and talks on a credit line of about 15 billion euros ($18.9 billion) got under way in July.

Policy makers have begun to roll back 100 basis points of rate increases they carried out in November and December to stem a sell-off of Hungarian assets after the IMF and the EU suspended aid talks over a disputed central-bank law and all three major rating companies downgraded the country’s debt to junk status.

“Hungarian policy makers appear more willing to ease policy than we had initially expected,” William Jackson, economist at Capital Economics Ltd. in London wrote in an e-mail today. “We wouldn’t rule out a further one or two 25 basis- point rate cuts over the next few months.”

Given “the external financing risks,” deeper cuts to rates would only be forthcoming following the completion of the bailout talks, Capital said.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net