Hungary Charts Rate Path as Matolcsy Sees March Debate After ECBMarton Eder and Zsofia Vegh
Hungary’s central bank will wait until a meeting in March to discuss whether the lowest inflation rate in decades and the European Central Bank’s asset purchases warrant an interest-rate cut, President Gyorgy Matolcsy said.
There’re arguments “for and against” a rate decrease on the back of the ECB’s bond-buying program and Hungary’s consumer-price drop, Matolcsy told reporters at a conference in Budapest. The ECB’s 1.1 trillion euro ($1.2 trillion) stimulus plan to fight deflation in the 19-nation currency bloc may have limited impact on Hungary’s economy, according to Gyula Pleschinger, a non-executive member on the Monetary Council.
“It may lead to higher demand for Hungarian and eastern European assets and that could lower bond yields,” Pleschinger told reporters Monday. “Hungarian rate setters are unanimous on the need to wait until the March inflation report before deciding on whether further rate cuts are needed.”
The central bank is debating whether to revise a pledge to keep the benchmark two-week deposit rate at a record-low 2.1 percent until the end of the year after ending 24 months of consecutive reductions last July. The National Bank of Hungary said Jan. 27 that the inflation outlook had pushed the economy “toward an alternative scenario implying looser monetary policy,” the first time policy makers signaled they may abandon the pledge to keep rates unchanged this year.
Rate setters will take all arguments into consideration when assessing policy based on the March inflation report, according to Matolcsy. The central bank next plans to review rates on Feb. 24 and March 24.
“This shows the central bank will surely maintain rates this month,” Sandor Jobbagy, a Budapest-based economist at Intesa Sanpaolo SA’s CIB Bank unit, said by e-mail.
Rate cuts at a later stage can’t be excluded, although geopolitical risks from the Greek and Ukraine crises and the central bank’s preference for easing policy through its lending tools may keep it from cutting rates, Jobbagy said.
While Hungary’s central bank has held rates for sixth month, it’s used a 2.7 trillion forint ($9.8 billion) lending program to unlock credit growth. Its Funding for Growth plan, targeted at providing cheap credit to small- and medium-sized companies will be expanded to include larger companies, Matolcsy said on Jan. 23.
The yield on Hungary’s benchmark 10-year forint bonds was little-changed at 2.82 percent by 2:54 p.m. in Budapest after rising three days from a record-low 2.76 percent. The forint weakened 0.1 percent to 310.53 against the euro, after rising 1.8 percent last month, the best performance since June 2012.
Consumer prices fell 0.9 percent from a year earlier in December, the lowest rate since the 1960s, according to the Central Statistics Office in Budapest. Inflation will probably reach levels “near” the central bank’s 3 percent target next year, the Monetary Council said in a statement last week.
Hungary should consider further “cautious” monetary easing as a result of “persistent disinflationary pressures,” the International Monetary Fund said in a statement Jan. 30.