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"Too fast" HUF rally behind no hike surprise, says City

ISI News

London, June 24, 2008 (MTI-ECONEWS) - Hungay's central bank is likely to have backed away from a widely anticipated policy rate hike on the back of the forint's "too fast" appreciation, London-based emerging markets analysts said on Tuesday.

Defying a City consensus that had called for a 25bps hike on Monday as part of a cumulative 50bps tightening the markets have been generally pricing for this year, the NBH left its base rate on 8.50pc in what analysts said was a surprise move after the MPC's hawkish rhetoric over the past few weeks.

In its "New Markets Daily" comment released in London, Goldman Sachs said on Tuesday this "surprise" increases the risk that "the transition to full policy credibility for Hungary will be slower than we previously expected".

The important question is whether the Monetary Council thinks that the HUF is now strong enough to reach the inflation target, or whether it was just unhappy about the pace of the appreciation. "We believe it was the latter, and expect the Council to welcome and indeed promote further HUF appreciation in the next few months ... our expectation is that future data will point to inflation risks".

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