Hungary's central bank cuts base rate to 7.5 per cent

Hungarian-National-BankBudapest  - The Hungarian National Bank on Monday dropped its base rate by 50 basis points to 7.5 per cent, in line with analysts' expectations.

"A large majority of the monetary policy council voted for the 50-basis-point interest rate cut. The other option was a 75 basis point cut," bank governor Andras Simor told reporters.

The council cited as reasons for the cut a favourable medium-term inflation outlook - despite a spike caused by a hike in the value-added tax in July - and a more stable international financial environment.

The move continues a cautious policy of gradually easing the bank's benchmark lending rate since a whopping 3-percentage-point rise last October to 11.5 per cent.

The rate hike was a defensive move against possible speculative attacks on the forint, the Hungarian currency, as the financial crisis hit and the country resorted to a 25-billion-dollar rescue loan led by the International Monetary Fund.

Since then, the government has slashed public spending in key areas such as pensions and public-sector pay to rein in a budget deficit that peaked at 9.2 per cent of gross domestic product
(GDP) in 2006.

Simor said that the central budget deficit could remain below 4 per cent of GDP if the government's draft 2010 budget bill were passed in its current form.

The budget bill, due to be put to the vote on November 30, includes further spending cuts totalling 400 billion forints (2.17 billion dollars).(dpa)