Hungary central bank delivers 15th consecutive rate cut, forint weakens
Bank cuts base rate by 25 bps, as expected by slim majority
Economists had been almost evenly split between cut and hold
Several members voiced "strong arguments" for no change -cbanker
Forint hits session-low after rate cut
Adds comments from deputy governor Virag, new analyst comment, updates market reaction
By Gergely Szakacs and Boldizsar Gyori
BUDAPEST, July 23 (Reuters) - Hungary's central bank delivered its fifteenth successive rate cut on Tuesday, sending the forint to session-lows against the euro in what one economist described as a dovish step that ran counter to the bank's hawkish guidance last month.
The National Bank of Hungary cut itsbase rate by 25 basis points to 6.75% on Tuesday, as expected by a slim majority of economists who projected little room for further easing in the second half of 2024 after steep cuts over the past 15 months.
The NBH, which has faced strong pressure from Prime Minister Viktor Orban's government to reduce borrowing costs, has lowered its main rate by 1,125 bps since May 2023.
Nine of 17 economists surveyed by Reuters last week had projected the 25-bp cut in what isthe European Union's highest benchmark rate. Eight hadsaid the NBH would opt for no change given its mantra on a cautious policy approach.
Deputy Governor Barnabas Virag left the door open last week to either a rate cut or no change, but economists have said lower-than-expected inflation data and recent gains in the forint could swing the balance in favour of a rate reduction.
"After last week's communication the decision was not a surprise. However it is clearly a dovish step contrary to the hawkish words in June," Erste Group economist Janos Nagy said.
At 1338 GMT, the forint EURHUF=, central Europe's second-worst-performing currency this year behind the Czech crown EURCZK=, traded at a session-low of 391.3 versus the euro and weaker than 390.15 before the rate announcement.
Previous drops in the forint, which traded around six-week-highs in the run-up to Tuesday's decision, forced the central bank into emergency rate hikes in October 2022.
'CAUTIOUS AND PATIENT'
Virag said Hungary's improved risk assessment had allowed a rate cut on Tuesday, while the latest inflation data did not change the outlook for price growth, with core inflation seen temporarily rising near 5% by the end of the year.
"We cannot sit back. Cautious and patient monetary policy decisions are still justified," Virag told an online briefing.
He said several rate-setters had voiced "strong arguments" in favour of no rate change, but all policy makers present had eventually backed Tuesday's cut.
Virag said one or two further rate cuts expected by economists before the end of 2024 looked realistic, adding that inflation could come in below market expectations in the second half despite somewhat stronger repricing than in the past.
Headline inflation, which scaled the EU's highest levels of over 25% in the first quarter of 2023, eased to a lower-than-expected 3.7% in June from 4.0% in May.
"The decision by the Hungarian central bank to cut interest rates by 25bp again today... means that rates may end this year a little lower than we had previously thought," Capital Economics analyst Nicholas Farr said.
"After today's decision, we think the risks are skewed towards interest rates falling to 6.25%."
Reporting by Gergely Szakacs
Editing by Bernadette Baum and Gareth Jones
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