The National Bank of Hungary, the country's central bank, on Monday cut interest rates by 50 basis points to 7.0 percent, the lowest in over three years.

Central bank Governor Andras Simor told a news conference that further cuts were possible but would depend on inflation as well as the investor responses. This was the fourth consecutive reduction in as many months after the bank raised the rate to 11.5 percent a year ago to offset the financial crisis, when Hungary received a US$25-billion standby loan from IMF and the World Bank to bolster its economy.

A written statement issued by the bank cited low inflation, real economic flows and the comparatively low risk of cutting the benchmark rate as the reasons for the current decision. However, the bank continues to believe the Hungarian economy is vulnerable, and that all monetary measures have to be taken with extreme care.

The bank's rate-setting Monetary Council sees Hungary's economy beginning to grow again sometime in the middle of next year, and it believes that the inflation rate could come down to below 3 percent at that time. Three percent is the bank's medium-term inflation target.

Analysts see the central bank's interest rate coming down to about 5.5 percent on longer term but the Monetary Council has no set floor, Simor said.

The local currency, the forint, firmed slightly following the rate cut. It was 266 to the euro and 178 against the dollar late on Monday, a bit stronger than it had been earlier in the day.

(Xinhua News Agency October 20, 2009)