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Simor: MNB rate cut possible if inflation recedes, upward risks subside

The National Bank of Hungary (MNB) can cut interest rates if inflation remains on a downward track and upward risks to inflation subside, National Bank of Hungary governor András Simor said on a Hungarian radio program on Friday morning.

The central bank base rate is a tool to manage inflation and not to boost economic growth, Simor said. The slowdown in growth can be counterbalanced by higher employment and reducing taxes on businesses which, however, would require a reduction of budget spending and state redistribution, he said.

Speaking on state radio channel MR1, Simor repeated his earlier statement that the international financial crisis will have no significant direct effect on Hungary. This does not mean no effect at all, Simor added, since the current global crisis originating in the US will have an effect on all players. The most important effect of the crisis on Hungary will be investors’ growing fear of risks and a consequent general increase in the risk premiums. Hungary will, however, be able to lower this risk if the country reduces its fiscal deficit as it did in the past two years, the central bank governor said.

Simor said that the investors he met in London over the past few days agreed with the fiscal steps Hungary has made in the past two years and said Hungary’s risk assessment has improved, but that they were uncertain whether the process will continue. The improvement in Hungary’s government balance can be a steady one if politicians agree on a public-finance bill which lays before Parliament.

Passing of the proposal, which would set long-term regulations on the budget, would serve as a guarantee against a repetition of the earlier irresponsible budgetary policies, Simor said. A recent proposal on setting a cap on budget spending would also increase investor confidence, Simor added. (MTI-Econews)