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Hungary should hold rates until IMF agreement

Hungary’s central bank should keep borrowing costs unchanged until the government agrees on an International Monetary Fund bailout, which may allow rate cuts, Monetary Council members Ferenc Gerhardt and György Kocziszky said in an interview with Bloomberg published on Thursday.

The two, with the other two external members of the Council voted for keeping the rate on hold at the last rate-setting meeting on January 24, outvoting MNB governor Simor and its two deputies who voted for a 50bp rate rise.

“The government clearly and decisively committed itself to an agreement with the IMF,” Gerhardt said. “This justifies a calm, wait-and-see attitude.”

An IMF deal may “strengthen” the case for the “start of a rate-cut cycle,” Kocziszky said.

The Monetary Council doesn’t need to react to a one-time spike in the inflation rate, which rose to 5.5% in January, the highest since April 2010, from 4.1% in December, Gerhardt and Kocziszky said, saying that the jump in inflation reflected one-off factors such as the increase in the VAT rate and the weaker forint that boosted fuel prices. The MNB targets inflation of 3%.

Both Gerhardt and Kocziszky rejected that a split had emerged in the Monetary Council with the four new external rate setters, appointed in 2011, on one side and Simor and his two deputies on the other, Bloomberg reported, noting that the Economy Ministry criticized the two 50bp rate increases in November and December.

“There are seven independent people” in the Monetary Council, Kocziszky said. “On fundamental questions, I think there are no differences between the seven. There are differences on how I evaluate certain processes and how they manifest themselves in my context.”