Hungarian central bank cuts interest rate to 1.65 pct

The rate-setting monetary council of the National Bank of Hungary cut the benchmark two-week deposit rate by 15 basis points on Tuesday, bringing it down to 1.65 percent, a historic low.

The move, the third 15-basis-point cut in as many months, was in line with analyst expectations, causing only flickers in the Hungarian forint's exchange rate, which is about 282 to the U.S. dollar, and 309 to the euro.

A statement issued by the bank said to expect further cautious rate cuts for "as long as they support attainment of the medium term inflationary target."

According to a monetary council statement, the Hungarian economy was expected to keep growing but that output was below potential and international trade was slow in getting on track. Unemployment, the statement said, was still higher than what structural factors would make possible.

Consumer prices continued to trickle downwards in April, albeit at a slower rate than in March and core inflation grew slightly, thanks to increases in fuel prices, the service sector, raw food prices and wage hikes.

Further wage increases and livelier domestic demand are expected to push prices upwards although the trickle-down effects of raw materials prices could slow the increase.

In the international arena, the downgrade of Greece's national debt and tension surrounding its financing as well as less than ideal macroeconomic data from the United States have dampened investor moods. Hungary continues to be able to finance its debt from the market, which reduces its vulnerability and is bringing down its foreign debt.

According to the bank, inflationary prospects and the cyclic nature of the real economy suggest the possibility of further declines in interest rates and loose monetary conditions, so the rate can be cut still further as long as it supports the attainment of the medium term inflation target of 3 percent. Enditem