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Central bank edges closer to easing – rate-setters

Hungary's central bank is close to starting monetary easing to help the economy and should not hold back from cutting rates if improved sentiment in local markets persists, two rate setters told Reuters on Thursday in a joint interview.

The EU's highest rate – 7% – can not be maintained long as Hungarian firms need much lower interest rates, while central banks in Europe and the United States have already cut their own rates, Monetary Council members György Kocziszky and Ferenc Gerhardt said. Both are external members of the Monetary Council of the National Bank of Hungary (MNB) appointed by parliament last year.

"My motivation in the coming quite long period, and it's everybody's motivation, is helping growth, giving it a momentum somehow," Gerhardt, who voted for steady rates in July, said.
Gerhardt said he would prefer broad support in the seven-strong Council for a rate cut, but when asked whether a cut was possible even if the three internal members – the governor and his two deputies – were opposed to it, he said: "My answer is yes."

He declined to say whether a rate cut was possible at the next rate meeting on Aug. 28.
"We need to look at the documents that we get then, consider political changes concerning the IMF (credit talks)... and also take into account (market) expectations," Gerhardt said.

Market sentiment towards Hungarian assets was the decisive factor in rate decisions and that has continued to improve since the last rate meeting at the end of July, Gerhardt said.

The MNB has kept rates on hold in the past seven months, but last month two rate setters, Kocziszky and another external member, voted for a 0.25% points cut.

"I would be glad to see Hungarian small businesses and other firms grow stronger, I would be glad to see an increase in forint lending because it is barely beginning to pick up," Kocziszky told Reuters in the interview.

The four rate setters appointed last year by the parliamentary majority of the ruling Fidesz-Christian Democrat alliance broadly agree that the economy need lower interest rates, Gerhardt and Kocziszky added.

While the Monetary Council's internal members have been warning against a premature cut, the two rate setters interviewed by Reuters said that they also wanted to be cautious but a rate cut cannot be delayed forever.

"We have been hearing that mantra for half a year," Gerhardt said. "When it will become not premature?"

The rate setters added that interest rates should be cut gradually and should take market sentiment into account.

"The market is a lot wiser than to overreact if we cut a quarter point," Gerhardt said. "If we cut 2%, we will certainly get a punch and hard criticism."