Hungary's central bank decided in a tight vote in October to reduce its base rate by only 50 basis points, as four rate setters wanted a bigger cut, the minutes of the meeting showed on Wednesday. The bank cut rates by 50 basis points to 7.0 percent with 5 rate setters voting for the move, while 3 central bankers backed a 75 basis point reduction and one rate setter supported a 100 basis point cut.
The October rate cut was the fourth reduction in a row at the monthly rate setting meetings, and the third 50 basis point step following July's one percentage point reduction. "The overwhelming majority of members thought that with even steps the bank was more likely to create stability in a volatile environment, and it can reduce the risk of erratic reactions and overshooting in markets," the bank said in the minutes.
It said cutting rates was allowed by subdued demand in the recession-hit economy, which is expected to push inflation well below the bank's three percent target next year, and a fall in risks to financial stability also gave room to ease rates. Some analysts and market players have said the bank may slow the pace of cuts or even pause for months due to a weakening of the forint in the past week as risk aversion rose in global markets.
Analysts said after the minutes the rate cuts could continue. He said falls in retail sales and industrial output and rising unemployment would keep rate cuts on the cards through the first quarter of 2010, though the next meeting on November 23 could be a close call between a cut or hold decision. "It is not clear where the Monetary Council will stop but they have been cognisant of the risks of having to do a more dramatic about turn if we have a serious flare up in risk aversion and the currency sells off further," he said.
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