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Hungarian Inflation Set to Slow From 4-Year High Amid Rate Cuts

November 12, 2012

Hungarian inflation, the fastest in the European Union, probably slowed in October as the central bank gears up for further interest-rate cuts.

The inflation rate dropped to 6.3 percent from 6.6 percent in September, which was the highest since July 2008, according to the median estimate of 19 economists in a Bloomberg survey. The statistics office will publish the data tomorrow at 9 a.m. in Budapest.

The Magyar Nemzeti Bank on Oct. 30 reduced the two-week deposit rate for a third month by a quarter-point to 6.25 percent as this year’s recession outweighed inflation concerns and uncertainty about obtaining international aid. There’s still room to cut the EU’s highest interest rate as the nation’s risk assessment improves and the inflation goal remains within reach on the policy horizon, central bankers Andrea Bartfai-Mager, Ferenc Gerhardt and Gyorgy Kocziszky said Nov. 5.

“Fuel prices probably dropped in October after rising the same month last year,” while household energy price-growth probably slowed last month, Zsolt Kondrat, a Budapest-based economist at Bayerische Landesbank’s MKB unit, said in a phone interview. Still, “inflation doesn’t seem to matter with the majority of the Monetary Council focused on the exchange rate and the risk premium.”

The forint has gained 11.1 percent against the euro this year, the world’s best performance, as investors bet the government will get an International Monetary Fund loan to ease fiscal concerns and financing risks. It traded at 283.43 per euro at 1:11 p.m. in Budapest.

Default Swaps

The cost to insure government debt against non-payment with five-year credit-default swaps was 290 basis points today, falling from 299 points a month ago and as high as 735 points Jan. 5, data compiled by Bloomberg show. The yield on the 10- year government bond rose to 6.92 percent from 6.85 percent a month ago.

The central bank, which targets 3 percent inflation, in September raised its forecast for price growth to an average of 5.8 percent this year and 5 percent in 2013.

Inflation expectations are rising and monetary-policy makers should only lower rates once prices stabilize, Julia Kiraly, a central bank vice president, said Nov. 8.

It’s “too big a leap” to divide the Monetary Council into inflation and growth-oriented factions, Bartfai-Mager said last week. The country’s “equilibrium interest rate” is 4.5 percent to 5 percent, Gerhardt said.

The Monetary Council was split 4-3 in backing a rate cut over a proposal for no change in August and September. October’s decision, details of which will be published Nov. 14 in the monthly minutes, was backed by a “narrow majority,” MNB President Andras Simor said Nov. 6.

To contact the reporter on this story: Zoltan Simon in Budapest at

To contact the editor responsible for this story: Balazs Penz at

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