Hungary’s central bank cut its benchmark rate on Tuesday by 25 basis points to 5.5 per cent, in its sixth monthly cut in a row, amid concern about the recession-hit economy.
The bank acted despite recent weakness in the forint, which has this week touched the psychologically-important level of HUF300 to the euro for the first time since last June. Andras Simor, the governor whose term ends in March, has been under persistent government pressure to do more to simulate growth.
Hungary last week repaid a €607m ($815m) slice of an International Monetary Fund loan secured in rescue financing in 2008 and talks with the Fund and the EU on new credits have stalled in the face of Prime Minister Viktor Orban’s refusal to approve IMF- backed reforms.
Budapest is now planning to tap the international markets and take advantage of the current enthusiasm for emerging market debt.
But investors remain worried about Budapest’s policies. Their attention is focused on Orban’s choice of a new central bank governor to succeed Simor. Orban wants Simor’s successor to pursue more accommodating monetary policy to boost Hungary’s flagging growth. Economy Minister Gyorgy Matolcsy, who is pitching for the post, has said the next governor should “bravely use unorthodox tools” – a comment which won’t bring investors much comfort.
CEE debt: Hungary stands out, beyondbrics