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MNB governor: Easing cycle can continue

MNB

The National Bank of Hungary (MNB) can continue its easing cycle as long as the rate of inflation continues to fall, MNB governor György Matolcsy said in an interview with CNBC on Wednesday.

The National Bank of Hungary (MNB) can continue its easing cycle as long as the rate of inflation continues to fall, MNB governor György Matolcsy said in an interview with CNBC on Wednesday.

“When the rate of inflation comes down, we can follow the decreasing inflation track. If it stops, we have to stop. But, as far as the rate of inflation is concerned we still see the room to maneuver with regard to the base rate,” he told CNBC.

MNB rate-setters have continued an easing cycle started a year ago in August, albeit at a slower pace in recent months. The base rate now stands at 3.40%, a historical low.

After their last rate-setting meeting in October, the MNB’s Monetary Council said “further cautious easing of policy might follow” depending on the outlook for inflation and the real economy, and taking into account perceptions of the risks associated with the economy

Asked about the possible effect of the lower interest rate, and a weaker forint, on Hungary’s big stock of foreign currency-denominated loans, Matolcsy said that “We have only one anchor for the monetary policy ... it is the mid-term inflation target.”

“We do not deal with the changes of our exchange rate, we do not see the necessity to intervene. Quite frankly, we have a policy of non-intervention.”

He said lower interest rates would “probably” not make a difference to distressed debt.

After “fine-tuning,” Funding for Growth momentum expected to rise
Yesterday in conference, Matolcsy stated that the MNB expects its Funding for Growth scheme to pick up momentum from next spring or summer, explaining that the scheme was currently being “fine-tuned.”

The MNB made HUF 750 billion of 0% refinancing available to banks to support SME lending in the first phase of the scheme in June through September. The second phase of the scheme launched in October with HUF 500 billion of refinancing.

Matolcsy said the scheme would not have been possible without the introduction of the proportional, flat-rate tax system.

According to a recent survey undertaken by Budapest Bank, about 12% of Hungary-based SMEs received loans from refinancing available in the first phase of the Funding for Growth scheme, and another 15% seek to tap the scheme in the second.

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