Interest rates held

The National Bank of Hungary (MNB) kept the benchmark interest rate unchanged at 7.5% on Monday (Oct 29). The MNB said that the recent rise in food prices carry some risk from the point of view of mid-term inflation goals (inflation expectations might elevate.) The central bank said in a statement that the mid-term inflation trend is still favorable (and the 3% inflation goal is achievable for 2009), partially due to Hungary's lower economic growth.

The decision to keep rates on hold reflected a cautious attitude of the central bank, and came as little surprise.Analysts believe that rates will fall faster if global markets are more ready to take risk, and this strengthens the forint.The rate will fall more slowly than projected if food or service prices rise more than expected, or if wage increases pick up.The analysts at Cashline Securities do not see dazzling prospects for the future of the Budapest Stock Exchange, as they expect Hungarian stocks to continue to underperform compared with regional peers, at least until the Hungarian companies publish their quarterly results (in first half of November.)

Part of the reason why this week has seen very low participation from investors in the Hungarian market is that they are taking no positions in the local market given the uncertainty caused by the BSE being closed today and tomorrow (Thursday and Friday, Nov 1-2)

MOL, meanwhile, has received the E2.1bn syndicated loan which the company applied for at the beginning of October, press sources reported.MOL, Hungary's largest company, and the leading oil and gas refiner in the region, said earlier that the loan was for financing operations and acquisitions.However, apart from raising its stake in Croatia's INA, there are no further public acquisition targets.Cashline's analysts think that the money could also be used for treasury share purchases, but as the Lex-MOL law has come into force already (which prevents hostile takeovers of strategic Hungarian companies), an attempted takeover from Austrian oil company OMV will be very unlikely.

The Slovakian government plans to build an oil pipeline between Slovnaft's Bratislava refinery (Slovnaft is an affiliate of MOL, with the Hungarian company owning 98%) and OMV's Schwechat refinery in order to decrease the dependency on Russia's "Friendship"(Druzba) pipeline, press sources have reported.The Slovakian government had wanted to start the building process in 2005, but at that time they found it too expensive (it would have cost around SKK30m, about $1.3m).

Gasoline hike
Economic news portal Portfolio.hu claimed that Mol had announced a Ft4 per liter hike on the gross retail price of gasoline effective as of tomorrow, while diesel prices will rise by Ft6 per liter.These price hikes come in line with the all-time high oil prices currently experienced, as an oil crude barrel cost has increased to $93, which is the record highest level yet seen.The hikes will boost the price of the most popular type of gasoline to an average Ft282.50 ($1.62) per liter, level with this year's highest price, set in August.Diesel will cost Ft176 ($1) per liter on average, higher than at any time since September 2006.