"András Simor, Governor or Hungary's central bank (NBH) has made a strong statement indicating further monetary easing to be on the horizon. While the Monetary Council did not discuss rates at its biweekly (non-rate setting) meeting on Monday, Simor told Reuters that the 10.00% base rate needed to be lowered as fast as possible.“The Monetary Council has declared that we would like to lower the base rate as fast as possible because both real economy prospects and inflation prospects would justify a significantly lower interest rate level than the current level," Simor said.
He reiterated that the bank must and would observe the stability of the financial system and capital flows when deciding on the pace of rate reductions.
Simor also said that there was a good chance that the bank would significantly undershoot its 3% medium-term inflation goal, and the target would be achievable even with a weaker forint exchange rate.
Simor's remarks come as a confirmation to the market's belief that while the MPC is likely to refrain from cutting its key policy rate at non-rate setting meetings - that surprised and was frowned upon by the market in early December - but rate cuts will come.
The NBH has lowered the benchmark rate in three 50-basis-point steps to 10.00% since late November, reversing only half of a 300-bp emergency hike carried out on 22 October to defend the forint. It was then when Hungary averted financial crisis thanks to a USD 25.1 billion IMF-led rescue package.
Favourable macroeconomic data and an ameliorated market environment may allow the MPC to become more aggressive in rate cuts than before (bigger than 50-bp steps)."
Source: Portfolio Online Financial Journal
06.01.2009