The quarter percentage point reduction was in line with market expectations. Analysts polled by both Portfolio.hu and Reuters said the MPC would have no reason to change the pace of rate cuts, although it could have found some arguments for it. Firstly, Deputy Governor Júlia Király voted to keep rates on hold at the previous policy meeting, indicating that the rate cut cycle could soon come to an end.

On the other hand, short-term arguments for a bigger monetary easing could have strengthened, as the forint has firmed over the past few days; interest by foreign money market players in Hungarian assets has grown; the inflation outlook has not changed and the most recent signs of recovery have not been overly convincing.

The response to all these factors by market analysts was that they gave a bigger chance of rate cuts for the remainder of the year, but stuck to their view of a 25-bp pace that is considered a sign of transparency and calculability from the MPC’s part.

And they were right, since the majority of the MPC members remained convinced that they should not confuse the market with a change of pace.

A month ago, economists still thought that the MPC would suspend its rate cut cycle following the March meeting, but the consensus shows a different picture now.

Some expect yet another rate reduction in April, while others see an interval and monetary easing continuing in the summer.

There is a wide-scale agreement, though that rate cuts continue to hinge on capital market sentiment and as long as it remains favourable, the easing cycle could continue.

The more spirited analysts see the base rate as low as 5.00% by year-end. This scenario, however, would require the world economy’s recovery to remain subdued, because if the upturn is stronger, the rate cycle of developed economies turns around and in case of a 'W-shaped’ recovery, Hungarian monetary easing could come to an end as a result of smaller or bigger waves of uncertainties on global capital markets.

The 5.50% base rate may also be judged differently. Compared to rates in developed economies, but even to the benchmark rates in Hungary’s regional peers, remains high, especially in light of the country’s deep recession. But considering that the Hungarian economy was on the verge of meltdown a year ago, we may say that the lowest base rate since the change of regime is not unrealistic.

The MPC will issue its official statement about today’s rate call at 15:00 CET, the same time NBH Governor András Simor will start a press conference."

Source: Portfolio Online Financial Journal