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Cbank: Though inflation falling, Hungary cannot match steep rate cuts in less risky countries

  Even though Hungary is likely to meet its mid-term inflation target by the H2 of 2009, it cannot match the depth of rate cuts in the US, the UK or Switzerland because it does not enjoy the same risk assessment as these countries, MNB governor András Simor told Parliament’s Economy and IT Committee on Wednesday.

 

“Investors today place Hungary’s risk assessment in the same category as South Africa, the Philippines, Turkey, Croatia, Bulgaria, Estonia and Lithuania, and rates are at least as high in these countries as (in Hungary), and they are not making radical rate cuts either,” Simor said.

Hungary has to pay its risk premium, he said. If the forint were to lose 10% of its value because of radical rate cuts, banks’ lending resources would be reduced HUF 430-450 billion because of mandatory risk reserves, he added.

The MNB can continue cutting rates if the country’s risk assessment improves, Simor said, answering a question. He added that the stand-by loan from the International Monetary Fund had raised the central bank’s foreign reserves.

About a thousand billion forints more liquidity flowed into the Hungarian banking system in the last quarter than in the previous one, but banks are lending to retail clients, not corporate clients, because the profit margin is higher, Simor said. (MTI-Eco)