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UPDATE 1-Hungary cbank council split over 100bp July cut

Published 08/12/2009, 08:58 AM
Updated 08/12/2009, 09:00 AM
TGT
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* 4 cbankers voted for 100bp cut, 3 wanted smaller cut

* Governor and deputy supported 50 bps rate cut

* Cbank says size of July cut was not guidance for markets

(Adds comments, detail)

BUDAPEST, Aug 12 (Reuters) - Hungary's central bank decided on a bigger than expected 100 basis point interest rate cut on July 27 in a tight vote as an improvement in the country's risk assessment encouraged the Monetary Council's doves.

The bank's governor, who wanted a smaller cut, was voted down, the minutes of the meeting showed on Wednesday.

Four members of the Monetary Council voted for the 100 basis point cut to 8.5 percent , the bank's first rate cut since January, and one rate-setter supported a 75 basis point cut. Governor Andras Simor and his deputy Ferenc Karvalits wanted a half percentage point reduction.

Two rate setters were absent from the meeting.

The bank signalled that rate cuts would continue and that it wanted its rate moves to guide market expectations, though the size of the bigger than expected July cut was not a guidance for the future, it said.

The members agreed that downwards pressure on prices from Hungary's recession would help the bank meet its 3 percent medium-term inflation target.

The country's risk assessment has improved and successful foreign and domestic government bond issues showed that the country had access to market financing, the bank said.

"However, there was a division of views over the issue of the timing of interest rate cuts," the bank said, with some members arguing that the Council should take advantage of the additional room for monetary policy as fast as possible.

"Other members argued that the Bank should implement interest rate cuts more cautiously and in smaller steps, its actions should be predictable and it should prevent an overshooting of interest rate expectations," it added. The bank will hold its next rate-setting meeting on Aug. 24., and analysts said a further cut was likely, though the size was questionable after the tight July vote.

"July inflation came in very low, which is a strong argument for a 50 point cut for the August rate meeting," said David Nemeth of ING Bank in Budapest.

"That's also conditional on the forint holding onto current levels versus the euro," he added. "However, if the most recent weakening of the forint continues, that could support holding the rates."

For a July 30 Reuters interview with Judit Nemenyi, one of the four rate setters who voted for the 100 basis point cut, please double click on [ID:nLU430948] (Reporting by Sandor Peto; Editing by Victoria Main and Andy Bruce)

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