Hungaryâ€™s inflation outlook and the improvement in risk assessment allow the central bank to lower the European Unionâ€™s highest benchmark rate, central bankers Andrea Bartfai-Mager, Ferenc Gerhardt and Gyorgy Kocziszky said.
Interest-rate reductions must be cautious and gradual as policy makers seek to move along with market sentiment and avoid forcing anything on it, Bartfai-Mager said in an interview in Budapest today. Cuts shouldnâ€™t exceed a quarter-point at a time, Gerhardt said in the same interview, which included three of the four non-executive rate setters who have driven policy easing since August. The countryâ€™s â€œequilibrium interest rateâ€ is 4.5 percent to 5 percent, Gerhardt said.
The Magyar Nemzeti Bank on Oct. 30 reduced the two-week deposit rate for a third month by a quarter-point to 6.25 percent as concern about a recession outweighed the EUâ€™s fastest inflation and uncertainty about obtaining international aid. Policy makers had a â€œnarrow majorityâ€ for the cut over a proposal for no change, MNB President Andras Simor said.
â€œFavorable developments in risk premiums and the exchange rate are persistent based on currently available informationâ€ and provide maneuvering room for monetary policy, Bartfai-Mager said. Accelerating inflation is primarily fueled by first-round effects, which central banks typically overlook, she said.
Developments in the past week â€œallow for a more relaxed thinking,â€ Gerhardt said. â€œAt 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.â€
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