External rate-setters see room for further rate cuts

Interview

The National Bank of Hungary (MNB) could continue a loosening of monetary policy started in August as long as Hungary's risk assessment continues to improve, new inflationary risks do not arise and the global environment does not deteriorate, two of the central bank's rate-setters said in an interview with Portfolio.hu published on Friday.

Ferenc Gerhardt said rate cuts could continue "as long as the conditions allow". "If some kind of drama happens in the world, then naturally the rate cuts cannot continue," he added.

György Kocziszky noted that rate-setters must weigh other factors beside inflation when taking monetary policy decisions.

"In addition to inflation, the size of the output gap, the tendency of its changes and the development of [Hungary's] risk premium are factors considered in the course of deciding [monetary policy]," he said. "Obviously, it is different in a situation of macroeconomic balance and again different during a period of crisis or near stagflation. The inflation targeting regime would be oversimplified if we said that a rate rise must be the automatic response to rising inflation," he added.

Gerhardt and Kocziszky are two of four external members of the MNB's Monetary Council. The external members outvoted the Council's internal members to cut the base rate by 25bp in August. Another cut, decided by a "narrow vote", followed in September.

At the center of the debate between the external and internal rate-setters is the effect of monetary policy on growth and inflation.

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