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Hungary May Cut Main Rate to 5.5% by End of March 2013, BNP Says

Hungary’s central bank may cut its benchmark interest rate by one percentage point by the end of March 2013 provided the government obtains an International Monetary Fund bailout by year-end, BNP Paribas SA said.

The absence of international aid would prevent rate reductions from the current 6.5 percent, Michal Dybula, an emerging-market strategist at BNP Paribas in Warsaw, said today in a research note. Hungary lowered borrowing costs for the second time in as many months this week with a “tight majority” over a proposal to leave the main rate unchanged.

Hungary requested aid in November as its credit rating was cut to junk. The latest round of IMF talks stalled after Orban on Sept. 6 rejected cutting pensions and scrapping an extraordinary bank tax as well as other measures to reduce the budget gap, which the government said were the IMF’s conditions.

“We continue to expect Hungary to reach an agreement with the IMF and the European Union on financial aid before the end of the year,” Dybula wrote. “However, the talks will not be easy as the differences in opinion about the structure of public finances are sizable.”

Hungary needs a loan agreement for “a sustainable” reduction in its risk premium, Dybula wrote. The economy will grow 0.4 percent next year after a 1.1 contraction in 2012, BNP forecast.

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