Hungary's central bank cut key interest rates by 50 basis points to 11 per cent in a surprise move at its monthly policy meeting today.
This was the first rate meeting of the bank's rate-setting Monetary Council since October 22nd when it raised interest rates by 300 basis points in an emergency move to shore up the falling forint and domestic financial markets.
The bank also released its fresh quarterly inflation report, in which it sharply reduced its inflation forecasts for both next year and 2010, and also cut its economic growth forecasts.
The bank cut the 2009 average inflation projection to 3.1 to 3.4 per cent from a previous forecast of 4.1 per cent published in August, while it reduced the 2010 inflation projection to below 2 per cent from 3 per cent.
The bank also said it reduced commercial banks' mandatory reserve requirement to 2 per cent from 5 per cent from December.
Analysts said the rate cut showed that Hungary's inflation outlook has improved significantly.
"Inflation expectations are declining given the backdrop of a recession, you can see it in the inflation report. Inflation will be close to the (three percent medium-term) target in 2009 and well below the target in 2010," said Zoltan Torok, analyst at Raiffeisen in Budapest.
Earlier this month Slovakia's central bank cut its main two-week repo rate by 50 basis points to 3.25 percent, to bring it back in line with euro zone borrowing rates before it adopts the euro in January.
The Czech central bank slashed rates by 75 basis points to 2.75 per cent, while the Polish central bank is expected to hold fire later this week, although some players in the market are now factoring in a cut.
Reuters