Hungarian central bank cuts key rate to 5.50%

The Hungarian central bank cut its key interest rate by a quarter of a point to 5.50 percent on Tuesday, marking the sixth reduction in a row.

The bank said in a statement on its website that its monetary council had decided to reduce the key rate by 25 basis points (0.25 percentage points) to 5.50 percent.

Most economists had expected the bank, the subject of controversy over its independence from the government, to cut the rate.

The four members of the monetary council appointed by the conservative government headed by Prime Minister Viktor Orban, had imposed the last five rate cuts to support the economy which is in recession.

But the three members appointed internally, the president of the bank Andras Simor and his two deputies, had voted to hold the key rate steady while warning of the risk of inflationary overheating in the economy.

Inflation in November eased to 5.2 percent but in October it was 6.0 percent and in September 6.6 percent.

The central bank expects inflation to ease sharply this year to 3.5 percent on average.

The forint scarcely moved on the foreign exchange market, being traded at 297.50 to the euro after the announcement from 297.00 a short time earlier.

On Monday, the forint had fallen briefly below the level of 300 to the euro for the first time since June 2012 against a background of concern about who will be the next head of the central bank in March.

The controversial Economy Minister Gyorgy Matolcsy is one of the people thought likely to replace Simor, who is highly respected. Simor's two deputies are to leave their posts in April and July.

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