Hungary central bank resumes rate cuts, flags caution in further policy steps
Bank cuts base rate by 25 bps, as expected
Cuts in easing cycle now total 1,150 bps
6.5% main rate still highest in the EU
Analysts see one more 25-bp cut by end-2024
Adds central bank's comments
By Gergely Szakacs and Krisztina Than
BUDAPEST, Sept 24 (Reuters) -The National Bank of Hungary (NBH) cut its base rate by another 25 basis points to 6.5% HUINT=ECI on Tuesday, aided by a fall in inflation and last week's larger-than-usual cut by the U.S. Federal Reserve.
The NBH, which has slashed borrowing costs by a combined 1,150 bps in its current cycle, said a careful and patient approach to monetary policy was justified and warned that policy makers should not overreact to the Fed's rate easing.
"The Council is constantly assessing incoming macroeconomic data, the outlook for inflation and developments in the risk environment, based on which it will take decisions on the level of the base rate in a cautious and data-driven manner," the Monetary Council said in a statement.
Deputy Governor Barnabas Virag told a briefing it was too early to see the scope for policy moves in the next three months and the bank would decide on a monthly basis, weighing the options of no change in rates or a small cut.
He said more data would be needed to see the impact from the Fed rate cut on emerging markets.
The bank slashed its economic growth forecasts for this year and next -- a headache for nationalist Prime Minister Viktor Orban, whose government has repeatedly put pressure on the bank for even more aggressive rate cuts to aid the economic recovery.
The NBH said anchoring inflation expectations and preserving financial market stability were key to achieving its 3% inflation target in a sustained manner in 2025.
The NBH haspinned further easing on inflation developments and the policy course of major central banks after temporarily halting rate cuts last month.
Tuesday's decision was in line with the unanimous forecast of 16 economists in a Reuters poll last week.
EASING INFLATION
Data published since the bank's August meeting showed Hungarian inflation, which scaled the European Union's highest levels of more than 25% in the first quarter of last year, easing to a three-and-a-half year low of 3.4% in August.
At 1340 GMT, the forint EURHUF=, central Europe's worst-performing currency with a nearly 3% loss for the year versus the euro, traded at 394.6 per euro, unchanged from levels just before the announcement.
Analysts see the Hungarian base rate, which is still the EU's highest benchmark alongside that of neighbouring Romania, falling to 6.25% by the end of 2024, implying one more 25-bp rate cut over the coming months.
Hungary, Romania run highest benchmark rates in the EU https://tmsnrt.rs/47AgpCN
Romania runs EU's highest annual inflation rate in August https://tmsnrt.rs/4eenvz8
Reporting by Gergely Szakacs and Krisztina Than
Editing by Andrew Cawthorne and Gareth Jones
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