* Romania cuts by 50 basis points to 6.5 pct, as expected
* Hungary cuts 25 bps to 5.5 pct, also as forecast
* Romanian leu firms briefly, then pulls back
* Hungarian forint edges higher
By Sam Cage and Krisztina Than
BUCHAREST/BUDAPEST, March 29 (Reuters) - Central Europe's
weak links Romania and Hungary cut official interest rates on
Monday and signalled they were ready to do so again as recovery
across the region looked weaker than previously expected.
The European Union's eastern wing is struggling to shrug off
weak demand in the euro zone and main export market Germany
while also fighting high unemployment, low wage growth and
hesitation from banks that are unwilling to lend more.
Monday's decisions follow comments from policymakers across
the region indicating borrowing costs will fall more or -- in
the better-off economies of Poland and the Czech Republic -- at
least stay stable longer than previously expected.
Both Hungary and Romania sought IMF-sponsored bailouts from
the IMF in the worst moments of the financial crisis and kept
interest rates high to fend off deeper currency and funding
problems.
On Monday, Romania's central bank as expected cut its main
rate <ROINTR=ECI> by 50 basis points to a record low 6.5 percent
after data showed the economy might still be in recession in the
first quarter. []
Inflation also resumed a downward trend in February, giving
the national bank more room to ease. It has cut 375 basis points
in rates over the past 12 months, but still has the highest in
the EU.
Hungary also met expectations, cutting 25 basis points
<NBHI> to a record low of 5.5 percent <HUINT=ECI>, helped by a
strong forint []. Analysts now see the bank holding
fire until after a general election next month.
Governor Andras Simor said the central bank had discussed
cutting by 25 or 50 basis points and the final decision had a
tight majority. He pointed to improving risk appetite that had
boosted the forint and Hungarian bond prices. []
"We continue to think that a (further) rate reduction
justified from an inflationary and real economic point of view
can happen if our risk assessment allows," Simor said.
TOUGH OUT
Both Romania and Hungary face a tough fight to meet their
fiscal commitments to the IMF and markets -- factors analysts
expect to keep price pressures and growth somewhat muted.
"The challenge will be to get interest rates down so banks
can lend more," said Cheuvreux analyst Simon Quijano-Evans, who
sees more cuts in both countries this year.
The leu <EURRON=> firmed briefly after the announcement but
it pulled back to 4.069 per euro by 1313 GMT. The forint edged
higher after the Hungarian decision and was at 265.54 per euro
<EURHUF=>.
The Czech central bank left rates on hold last week but two
board members voted for a cut and Governor Zdenek Tuma said its
next move could be down, a surprise to markets that had mostly
thought the Czechs were done loosening policy.
Market watchers expect Poland's Monetary Policy Council to
keep its key rate flat at 3.5 percent on Wednesday
[]. Poland was the EU's only state to grow last
year but inflation there is still weak, and analysts' faith in
forecast rises in rates this year is waning.
(Additional repoting by Luiza Ilie and Marius Zaharia in
Bucharest and Gergely Szakacs and Marton Dunai in Budapest;
editing by Patrick Graham)
