Hungary Ready to Ease as Inflation Goal Still Elusive, Nagy Says

  • Hungary may cut rates this year, according to central banker
  • Forint rate `not helping' to meet inflation goal, Nagy says

Hungarian monetary-policy makers are ready to abandon their steady-rate stance and may cut borrowing costs this year because the central bank is on track to miss its 3 percent inflation target again, Deputy Governor Marton Nagy said.

“I do believe that the lowering of interest rates may take place” as record-low inflation expectations and a "surprisingly resilient" exchange rate pose "significant downside risks to inflation,” Nagy said at a conference in Budapest on Thursday. The bank will also adjust the interest-rate corridor "imminently," he said.

Hungarian rate setters have been moving closer to cutting rates from a record-low 1.35 percent with price growth stuck below 1 percent for more than two years. While the central bank last month signaled that it may ease monetary conditions, Nagy’s comments are the most direct indication yet that policy makers are nearing a decision. They next discuss borrowing costs, unchanged since last July, on March 22.

"It’s extremely important for us to influence market perceptions and thus ease monetary conditions, especially regarding longer yields," Nagy said. The "surprising" resilience of the forint’s exchange rate amid global emerging-market turbulence is "not helping" the central bank in attaining its inflation goal, he said.

Forward-rate agreements used to wager on interest-rate changes showed bets for 35 basis points in cuts over the next six months, the most in a year. The forint weakened 0.4 percent to 310.36 per euro by 9:39 a.m. in Budapest , paring this year’s advance to 1.7 percent.

Hungary’s annual inflation rate fell to 0.3 percent in February from 0.9 percent in January, compared with analyst estimates for 0.5 percent. The National Bank of Hungary will probably lower its estimate for this year’s consumer-price growth in March from a 1.7 percent estimate in December, Nagy said.

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