National Bank of Hungary
Photo: DNH

Budapest, February 24 (MTI) – National Bank of Hungary deputy governor Márton Nagy would not exclude a reduction in the central bank’s base rate during the rest of the year, but told journalists and analysts on Wednesday that it was still too early to say whether easing could happen in the spring.

The central bank’s policy makers have kept the base rate on hold since signalling an end to an easing cycle at a policy meeting last July.

Nagy said the central bank 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 bank’s policy makers would like to wait for a number of decisions and events in March and April, such as the ECB’s next policy decision, the publication of the NBH’s Inflation Report and a decision on how Hungary will refinance maturing foreign-currency debt.

Hungary’s assessment has “become too good too fast”, Nagy said, adding that the improvement had been supported by the worsening assessments of other countries in the region. Hungary’s 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 “we’re not too close to this”. The central bank’s assets could fall by as much as 4 billion euros 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 stabilises 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 raises the chance the NBH will lower its inflation projection, he added.

Nagy suggested this year’s GDP growth could be over the 2.5 percent projection in the NBH’s 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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