Rate cut could hurt economy, says Simor

A loosening of monetary policy could hurt Hungary's economy because of the risk presented by foreign currency-denominated debt of Hungarian households and on banks' balance sheets, National Bank of Hungary (MNB) governor András Simor said at a presentation in London on Thursday, Reuters reported.

"At some point monetary easing would have an adverse effect on the real economy because of the foreign-exchange risk at the households' and the corresponding credit risk at the banks' balance sheet," Reuters quoted Simor as saying.

Simor called a government scheme allowing early repayment of forex mortgages at a discounted exchange rate a "significant source of uncertainty".

"This (plan) forces banks to take a significant loss from the foreign exchange loans. We believe this is not helpful in moving the economy forward," he said.

Simor said the MNB would closely watch banks' capital positions because of the weaker forint, but he noted that they were more than adequately capitalized.

"We ... have to recognize that the situation now and in 2008 is very different....At that time, the Hungarian banking system was in worse shape than now....The banking system has gone through tremendous restructuring (since). We are better prepared," Reuters quoted Mr Simor as saying.

Capital ratios of Hungarian banks are "extremely high", he added.