Hungary cuts main interest rate 20 basis points to 3.60%

Hungary's central bank lowered Tuesday its main interest rate by 20 basis points, or 0.2 percentage points, to 3.60 percent, the 14th straight monthly cut.

With inflation hitting a 39-year low of 1.3 percent in August, the MNB said the cut was an attempt to boost the economy, which remains weak despite emerging from recession in the first quarter.

"The monetary policy council believes that, taking into account developments in the economy and inflation, other prudent cuts in interest rates are still possible," it said in a statement.

The central bank lowered the rate by 25 basis points 12 times before reducing the size of the cut to 20 percent in August, and Tuesday's cut was widely expected by markets, with the forint little moved by the news.

Economists believe the central bank will lower interest rates further, with Peter Attard Montalto from Nomura expecting three more cuts of 20 points each, taking the main interest rate to 3.00 percent by the end of the year.

In July governor Gyorgy Matolcsy, installed by Prime Minister Viktor Orban earlier this year -- raising fears in some quarters for the bank's independence -- indicated further cuts would be of 10 points.

Hungary's economy grew just 0.1 percent in the second quarter after 0.6 percent in the first, when Hungary exited recession with growth outperforming many other eastern and central European emerging economies.

The government forecasts annual growth of 0.7 percent in 2013 and on Tuesday the central bank raised its forecast for the European Union member state to the same level from 0.6 percent.

It also hiked its projection for 2014 growth to 2.1 percent from 1.5 percent. It trimmed its inflation forecast to 2.0 percent for 2013 from 2.1 and to 2.4 percent from 3.2 percent for next year.

Brussels earlier this year removed Hungary from the so-called excessive deficit procedure, where it has been since joining the EU in 2004, in recognition of its efforts to fix its public finances.

Unemployment is above 10 percent, however, direct foreign investment is weak, Hungarian government bonds are rated "junk" by the main agencies and bank lending remains weak.

Orban meanwhile has spooked foreign investors by special taxes on certain sectors such as telecoms, and last week said the government was looking to renationalise utility firms.