Hungary rate cut expectations overdone, central bank economist says

"Events on financial markets have a strong effect on inflation and central banks cannot ignore that," he said. The central bank cut its base rate by 75 basis points to 8.25% at its March meeting, slowing the pace of rate cuts after the forint fell to a one-year low, and said the bank would slow rate cuts even more from the second quarter.

Market expectations for Hungary's base rate to fall to 4% by the end of the year are overdone, a National Bank of Hungary official said on Wednesday, with the central bank closely watching the forint's exchange rate and its impact on inflation.

The exchange rate has become more significant as it is critical for financial market stability and for keeping inflation within the bank's target range, the National Bank of Hungary's chief economist, Zsolt Kuti, said in an interview with news site portfolio.hu. "Events on financial markets have a strong effect on inflation and central banks cannot ignore that," he said.

The central bank cut its base rate by 75 basis points to 8.25% at its March meeting, slowing the pace of rate cuts after the forint fell to a one-year low, and said the bank would slow rate cuts even more from the second quarter. Market services inflation is still in double digits and the bank expects it to remain high in the short term, he said.

Deputy Governor Barnabas Virag said after the March rate meeting that expectations for the base rate to fall to between 6.5% and 7% by the end of first half were realistic.

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