Are you sure?

Rate decisions still assessed case-by-case, MNB governor says

The Monetary Council of the National Bank of Hungary (MNB) evaluates developments regarding inflation prospects and Hungary's risk assessment each month and makes its rate decision on that basis, MNB Governor András Simor told a press conference.

Simor was speaking after the council voted by a narrow margin on Monday for a 50 bp cut in the base rate to 7.00%. The other options were 75 bp and 100 bp rate cuts. Monday's base-rate reduction was the third consecutive 50 bp cut since a bigger-than-expected 100 bp cut in July.

The monetary council has not establish a long-term rate policy path in the currently changing environment and it reconsiders the two main factors each month, Simor said. One should not draw any conclusions regarding the next rate move from the current decision, namely the narrow adoption of the 50 bp cut and the other options for bigger cuts, Simor said.

The equal steps taken in the past few months could help the market to signal any danger zone earlier, the MNB governor said.

“September inflation figures reaffirm that there is an increasing risk of undershooting the inflationary target over the horizon most relevant for monetary decision,” Simor said, explaining the current step. “This made a rate reduction not only possible, but also necessary.”

September twelve-month inflation came in at 4.9%, well below the 5.2% consensus forecast.

Hungary's risk assessment has eased over the past couple of months, which could help the monetary council to focus increasingly on inflation, namely on the relation between inflationary prospects and the inflation target, Simor said. We will be able to pay more attention to the real economy, the MNB governor added.

Most recent data shows no sign of economic recovery in Hungary as opposed to the other countries in the region, suggesting that Hungary's economy will probably deviate from the other countries in terms of growth. Simor said this risk has to be analyzed. The MNB governor noted that Hungary's economy grew more slowly than the other CEE countries in the past few years and had started to behave - contract - in a similar way as the global crisis hit the region.

Hungary differs from the other countries of the region in several aspect, he said noting that the Visegrád countries could afford to lead a more permissive monetary policy. They have not such a big forex loan stock, Simor said.

The MNB does not have an exchange-rate target, Simor stated, adding that the importance of the interest-rate transmission is on the rise. More than half of the total corporate-loan stock and more than 30% of the retail-loan stock is denominated in forints, and forint interest rates are dropping, the MNB governor said. (MTI – Econews)