MNB deputy governor not excluding rate cut this year

Parliament

Image by Jessica Fejos

National Bank of Hungary (MNB) deputy governor Márton Nagy has not excluded a reduction in the central bankʼs base rate during the rest of the year, but told journalists and analysts today that it was still too early to say whether easing could happen in the spring, Hungarian news agency MTI reported.

The central bankʼs policy makers have kept the base rate on hold since signaling an end to an easing cycle at a policy meeting last July. 

Nagy said the MNB wants to continue to use both conventional and unconventional tools to ease monetary conditions. 

He said cutting the base rate in small steps was of no value. If the central bank re-starts an easing cycle, it must be of sufficient scale and frequency, he added. 

The central bankʼs policy makers would like to wait for a number of decisions and events in March and April, such as the ECBʼs next policy decision, the publication of the MNBʼs Inflation Report and a decision on how Hungary will refinance maturing FX debt.

Hungaryʼs assessment has “become too good too fast”, Nagy said, adding that the improvement was supported by the worsening assessments of other countries in the region. Hungaryʼs vulnerability and country risk premium have been reduced, causing the yield curve to flatten, he said. Long-term yields still need to fall further, he added. 

Nagy would not rule out the possibility of the interest rate corridor slipping into the negative, but said “weʼre not too close to this”. The MNBʼs assets could fall by as much as €4 billion in March, putting upward pressure on the interest rate corridor as liquidity falls, he said. For this reason, the bottom of the corridor may not need to be reviewed, he added. 

If the forint stabilizes around a strong position, inflation could slow and stronger monetary easing may be required, Nagy said. We are seeing lower inflation data from month to month, which increases the possibility that the MNB will lower its inflation projection, he added.

Nagy suggested this yearʼs GDP growth could be over the 2.5% projection in the MNBʼs last Inflation Report, published in December. But he added that the external environment is still very volatile and sensitive. 

He said talks were underway with banks on revamping the Bubor market. The results of the talks, still in the technical phase, are likely to be seen in early May, he added.

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