Hungarian and Polish central bankers will decide on monetary policy next week, and while no change is expected in Warsaw, Budapest’s policy makers are poised to cut interest rates.

Analysts and financial markets both expect monetary easing in Hungary Monday. All 16 private bank economists polled by Dow Jones Newswires see the Hungarian Monetary Policy Council lowering the policy rate from 9.5%, the highest in the European Union. And 13 of them expect a 50 basis-point rate cut, while the others foreseeing that or a 25 basis-point cut.

The re-launch of the easing cycle – Hungary hasn’t touched its key rate since
a 50 basis-point cut in January – is supported by the forint’s relative stability and its recent rally.

Another key factor is an improvement in investor sentiment toward Hungary, the country hardest hit in the region by the global financial market crisis. The cost for insuring $10 million in Hungarian sovereign debt against default for five years has more than halved to around $305,000 from its first-quarter high of $630,000.

Hungary’s success a week ago in selling EUR1 billion in Eurobonds, which
attracted bids totaling EUR2.9 billion, is an indicator of rising risk appetite
and that the country may become less dependent on International Monetary Fund financing.

The MPC will likely feel it could loosen monetary conditions because the
country’s July 1 tax increases shouldn’t threaten its medium-term inflation
target of 3%. The sharp 6.7% decline in gross domestic product for the year
expected by the government will most probably lessen inflation expectations, which otherwise could get a boost from rising consumer prices.

In Poland, the meeting of the central bank’s Monetary Policy Council, or RPP,
will be in focus, but isn’t expected to bring any changes to key interest
rates, said all 11 economists surveyed by Dow Jones Newswires.

That is because after cutting key rates by 25 basis points to 3.50% at its
last meeting June 24, the RPP will monitor economic indicators and market
situation, analysts said.

“First of all, the RPP will await second-quarter gross domestic product data
due late August and its new inflation projection due in September,” Bank Pekao said in a research note.