Bartfai-Mager, Kocziszky, Gerhardt Back ‘Gradual’ Hungary Easing
Hungarian Monetary Council members Andrea Bartfai-Mager, Ferenc Gerhardt and Gyorgy Kocziszky comment on the outlook for interest rates, the country’s request for aid from the International Monetary Fund, on foreign- currency bond issuance and on divisions within the council.
They spoke in an interview in Budapest today.
On Hungarian interest rates:
“The developments in the past week on the factors mentioned in the statement allow for a more relaxed thinking. I would stress the exchange-rate trend, because inflationary impacts can come in straight away via the currency, mostly in the area of energy prices.
‘‘At the current level of Hungarian interest rates, the limit of caution is 25 basis points; very powerful reasons would be needed for a cut or increase of 50 basis points. Cuts of 25 basis points are in line with the very cautious behavior toward risk which the Monetary Council has showed since it has been in office in the current composition.
‘‘It is very brave to predict anything but taking Hungarian specifics into account I believe that the equilibrium exchange rate is 4.5 percent to 5 percent. By equilibrium interest rate I mean the rate which supports the growth of the economy to the same extent as it prevents inflation from getting out of control.’’
‘‘This is a very cautious and gradual cycle carried out in small steps, in line with market thinking and not forced on it.
‘‘Favorable developments in risk premiums and the exchange rate are persistent based on currently available information.
‘‘The credit-default swap and forint trends are much more favorable than what is in the base scenario of the inflation report. A factor like that may help provide a chance for further easing.
‘‘The economy is being hit with repeated cost shocks and we constantly have to re-examine its impacts. These gradual small steps provide an opportunity to decide whether to proceed when we can and to pause when that moment comes -- not to finish the cycle, but to pause and see how trends are developing.’’
‘‘I am mostly seeing first-round effects, which are due to drought, increases in the oil price and the budget measures.
‘‘The impact of government measures on inflation and the real economy can only be judged at the earliest in December, when the next inflation report is published.
‘‘On the medium-term inflation outlook we said that we’ll reach the target on our horizon, 2014. We also said there aren’t second-round effects and we don’t have to fear inflation pressures on demand-sensitive products. If this positive environment remains but we see that our statements on inflation have changed, then we’ll think it over, but I do not see this now.’’
‘‘Retail trade volume has fallen 3 percent based on statistics data, so there is a dis-inflationary effect, the slump in consumption is substantial in each segment.’’
On the IMF-EU negotiations:
‘‘The Monetary Council would very much welcome the resumption and completion of IMF talks. It seems the progress in the IMF/EU talks has split off from CDS prices.
‘‘On the question of the IMF talks, our role resembles that of fans at a soccer game, we can only encourage the two teams. Two players, each with a strong will, are trying to decide based on which negotiating positions they should sit down to talk.
‘‘If the market assessment is that Hungary’s risk situation can be regarded as stable even without an IMF deal then the Hungarian government can go out to global markets with foreign- currency denominated securities and can do so at interest rates which are ideal for the country.
‘‘We don’t see a risk that the Hungarian market will come under serious and permanent pressure if there was no IMF deal. Based on our current assessment an IMF deal is a precondition for foreign-currency issuance. We don’t calculate with there being no IMF agreement.’’
‘‘Both the base and the risk scenario calculate with an IMF deal, no one has put that into doubt, the staff are saying that too.’’
‘‘For the past 12 months, we have recommended and supported the striking of an IMF agreement and we haven’t changed that despite the favorable risk assessment in the world.
‘‘In my personal, decisions I presume that there will be a deal between Hungary and the IMF/EU.’’
On disputes within the Monetary Council:
‘‘Where we have professional disputes that is concerning the inflation scenarios, on questions of investment and capacity, how much growth the auto industry can produce, the investment in that industry, how we assess questions of wages and employment.’’
‘‘It’s too big a leap to divide the Monetary Council into inflation and growth-oriented parts. I see it as an oversimplification and needless to presume there is a political divide, because the disputes are professional.’’
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