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Hungary rate-setters agree on ruling out unconventional policy measures

National Bank of Hungary rate-setters may be divided over the effect monetary policy has on economic growth, but they appear to agree that unconventional stimulus measures being used by central banks in the West are not appropriate for Hungary.

"The interest rate is the number one and the most articulate tool for monetary policy. Quantitative easing is unimaginable," Ferenc Gerhardt, an external member of the MNB's Monetary Council, told Dow Jones on Monday. Andrea Bártfai-Máger, another of the body's four external members, said there was "no consideration" of using any other monetary policy tool than the base rate. Júlia Király, one of the Council's three internal members, said in a radio interview on Friday that unconventional monetary policy measures recently taken by central banks in the West were necessary because central banks there could no longer achieve anything with their basic tools. But she warned that taking such steps in Hungary would damage the country's economic situation because of its high degree of vulnerability. The government dismissed speculation early this year that it wanted to use the MNB's international reserves to spur economic growth.
The two external rate-setters suggested an easing cycle started in August could continue. "We are engaged in a careful monetary easing cycle but if our assessment of economic developments needs to be changed, if data come in demanding that, we will change our assessment," Ms Bártfai-Máger told Dow Jones. Gerhardt said rate decisions would be "cautious, prudent and predictable". He put the "equilibrium" interest rate at 4.5-5%, while adding that the number could be "totally different" in a month depending on economic conditions. The base rate is 6.25% at present, compared to 7.00% in August. The Council's external members outvoted the internal members to cut the central bank's key rate at meetings in August and September, minutes from the meetings show. The same likely took place at a meeting in October, although the vote will not be known until minutes from the meeting are published on Wednesday. The external members have said the rate cuts are necessary to support growth. The internal members reject this argument, saying easing is premature in light of high inflation and noting that factors other than high interest rates are restraining economic growth.