MNB deputy governor only one to vote for rate rise at Oct 25 meeting

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National Bank of Hungary (MNB) deputy governor Julia Király was the only member of the central bank’s Monetary Council to vote for a rate rise at a meeting on October 25, the condensed minutes of the meeting published Wednesday show.

Király voted to raise the MNB’s key rate by 25bp.

Governor András Simor, deputy governor Ferenc Karvalits and Monetary Council members Andrea Bártfai-Mager, János Cinkotai, Ferenc Gerhardt and György Kocziszky all voted to keep the base rate on hold at 6.00%.

The Council left the rate on hold for the ninth month in a row at the meeting.

Király was also the only one to vote for a rate hike at the Council’s rate-setting meeting in September.

The overwhelming majority of members agreed that the Council should continue with its wait-and-see approach to monetary policy in light of growing risk aversion as well as the effect on the outlook for inflation of the handling of the eurozone debt crisis and the announcement of economic policy measures by Hungary’s government, according to the condensed minutes.

"The latest real economic developments would warrant an easing of monetary conditions, but the sharp deterioration in global risk perceptions and financial stability risks prevented the Council from carrying it to effect," the minutes show.

Some members noted that several leading politicians had held out the prospect of expanding the range of opportunity to participate in a government scheme that allows full repayment of foreign currency-denominated mortgages at discounted exchange rates. This would adversely affect Hungary’s risk perceptions if implemented, they argued.

"It was...the unanimous view of the majority of members that the medium-term outlook for inflation could be assessed after actions by the European Union to deal with the sovereign debt problems within the euro area and the Hungarian Government’s economic policy measures were announced," according to the minutes.

"The members’ views were divided on future desirable monetary policy conditions and their communication," according to the minutes. Some members thought the European Central Bank was expected to cut rates in the near future, which called for maintaining a wait-and-see approach. One argument was made that Hungarian monetary policy was unable to respond to external shocks resulting from the eurozone sovereign debt crisis, but "several members" thought that if external conditions did not improve and the increase in Hungary’s risk perceptions persisted, inflation risks might increase and tightening monetary conditions "could not be avoided later on".

In a statement published after a non-rate-setting meeting on Tuesday, the Council said the recent devaluation of the forint was not in line with the fundamentals of the Hungarian economy. However, if the increase in risk aversion on European financial markets proves to be long-lasting, it may be necessary to tighten monetary policy, it added.

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