Hungarian Central Bank Committed to Rate Cuts, Palotai Says

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Hungarian policy makers are prepared to continue monetary easing as long as warranted by the inflation outlook, according to Daniel Palotai, executive director at the National Bank of Hungary.

“The market may have underestimated the central bank’s forward guidance that it will continue to cut the main interest rate as long as necessary to meet the medium-term inflation goal,” Palotai said in an interview in Budapest on Thursday.

The central bank returned to monetary easing in March after a seven-month pause as consumer prices fell the most since the 1960s. Policy makers cut the main rate to a record 1.95 percent from 2.1 percent, a smaller cut than forecast by most economists.

“One needn’t fear that the bank can’t achieve its goal even with 15 basis-point steps,” Palotai said.

The central bank will remain “quite cautious” with its cuts even as it sees scope for further easing, the Wall Street Journal reported, citing an interview with Monetary Council member Gyula Pleschinger.

The forint, which traded stronger than 300 per euro for the first time in more than a year last week, fell 0.3 percent to 299.71 at 5:44 p.m. in Budapest after Palotai’s comments. That pared the currency’s gains since the March 24 rate cut to 1.3 percent.

While the strengthening of the forint in itself “clearly doesn’t go in the direction of monetary easing,” the central bank is more focused on longer-term currency trends when it sets the pace of rate moves, Palotai said.

The central bank targets an inflation rate of 3 percent in the medium term with a 1 percent tolerance band on either side. Policy makers forecast zero price growth this year and 2.6 percent in 2016.

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