The Hungarian assets rallied as official talks with IMF started on Tuesday. The Hungarian forint gained for the third session in row and EUR/HUF has approached critical support range 280-285 (2012 lows). Meanwhile the Hungarian bonds rallied and 10Y yield broke below 7.5% for the first time since September 2011. The bonds were also supported by mounting bets on interest rate cuts. At least part of the market believes that the central bank could start cutting interest rates as soon as next week after the long-awaited negotiations with IMF have finally started. Although we believe the MNB Monetary Council should vote for a rate cut soon, considerable opposition to monetary easing can remain. Some central bankers (including MNB’s president Simor) can be afraid of the impact of eventual negative news emerging from initial phase of IMF talks on the credibility of Hungarian assets. That is why we do not be on a (25bps) rate cut in August, but on the start of easing cycle in September. Nevertheless, we know that our estimate for the August decision of the MNB (the meeting is held next Tuesday) is a close call. Of course, as usual external conditions will matter too as any mounting nervousness on euro-peripherals reduces manoeuvring space for the Hungaria monetary policy.