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Hungary Cuts Interest Rate To New Record Low

Hungary's central bank lowered its key interest rate by another 25 basis points to 4.5 percent on Tuesday, and will continue to cut the rate as long as investment in emerging economies continues, one analyst told CNBC.

It is the tenth consecutive 25 basis point cut since the central European economy started its easing cycle in August last year, when the rate stood at 7 percent.

"They are going to cut and cut by 25 basis point increments, as long as global risk sentiment and the forint exchange rate allows," said Nicolas Spiro, managing director of Spiro Sovereign Strategy. He added that Hungary was one of the main beneficiaries of investors looking for high returns in "risky" emerging markets.

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Agata Urbanska, Central Eastern Europe economist at HSBC told CNBC's Squawk Box, that she also expected more rate cuts. "There is still space. Our forecast is that rates are coming down to 3.5 percent by the end of the year," she said.

Hungary's forint was at its highest level for five months at the time of the rate decision, and remained steady after the announcement. The country's economy is sensitive to currency volatility, as a large proportion of household and corporate loans were taken out in euros and Swiss francs in the build-up to the financial crisis.

Spiro added that although Hungary's gross domestic product came in better-than-expected in the first quarter at 0.7 percent, "the improved headline figure covers underlying structural problems."

(Read More: Hungary Cuts Interest Rates to Record Low)

Like many European countries, Hungary is dealing with the problem of translating lower interest rates into economic growth, while reigning in its budget deficit with austerity taxes.

The latest measure to be introduced by the country's government is directed at the media industry and taxes advertisements. Other "innovative" policies target banks, telecom companies, car insurance, financial transactions, and utility infrastructure.

"The government is undermining business confidence with this policy of newer and newer taxes," Urbanska added.

In 2011, Hungary unveiled a number of measures targeting unhealthy food – much like New York Mayor Michael Bloomberg, who attempted to ban giant sodas in the U.S. city.

Hungary introduced a "chips tax" on sugary soft drinks, salty snacks, instant soups and chocolate bars in an effort to address rising healthcare costs and boost fiscal revenues in a politically correct way.

To stimulate economic activity in spite of the heavy tax burden, the Hungarian central bank also launched a super-low interest rate program for corporates, similar to the UK's "Funding for Lending" scheme.

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