Analysts disagree only on how fast the base rate will come down in 2013, with estimates ranging from a quarter to a full percentage point.

The latest bond-buying programme unveiled by the US on Wednesday will also work in favour of further monetary easing, analysts told Napi Gazdasag.

The MNB has cut the base rate by 25 basis points at each rate-setting meeting since August, when the rate stood at 7.0%.

The decelerating inflation figures and weak growth outlook provide an argument for cuts, said Mariann Trippon of CIB Bank.

The market is pricing in further reductions, as yields on maturities of up to three years have fallen below the current 6.0% benchmark rate, unnamed analysts at Erste Bank told Napi Gazdasag.

Based on these developments, the base rate could fall to 4.5-4.75% next year, the lowest level on record, Erste argues.

External members of the monetary council, who have outvoted internal members in each of the last four meetings, are expected to advocate continuing monetary easing.

The government's 5.2% inflation target for 2013 is quite conservative and could be as low as 4.2%, giving further ammunition to the doves, analysts said.

Equilor broker Gergely Gabler noted that the change of leadership at the MNB when governor Andras Simor leaves office in March could lead to market uncertainties.

The new MNB governor may turn to unconventional monetary policy tools to boost lending and push bond yields down, he remarked. Equilor expects the base rate to fall to 4.75% by the end of 2013.

Source: Hungary Around the Clock

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