Hungary c.banker flags possibility of halt to rate rises – paper


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BUDAPEST — Hungary’s central bank should continuously weigh the possibility of a halt to rate rises as it has been raising borrowing costs for more than a year and inflation could soon peak, Deputy Governor Barnabas Virag was quoted as saying on Friday.

Central Europe’s rate setters were the quickest last year to begin raising rates and accelerated the pace this year as inflation surged, but some are starting to cool, or possibly end, tightening cycles.

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The National Bank of Hungary (NBH) raised its base rate by 100 basis points to 11.75% last month and pledged further “decisive” action to fight inflation, while announcing new steps to tighten forint liquidity in the interbank market.

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At its next policy meeting on Sept 27, the bank will publish a quarterly update of its economic forecasts.

“The (NBH) has been continuously tightening (monetary) conditions for 15 months,” Virag told the daily Magyar Nemzet in an interview. “In such a long rate rise cycle, we should also continuously weigh the possibility of a halt.”

In June, the bank forecast tax-adjusted core inflation, its preferred measure of lasting price trends, at 13% to 14% this year and 6.6% to 8.2% next year, both sharply above its target range of 2% to 4%.

Headline inflation rose to an annual 15.6% in August, with further rises expected from next month, after surging energy costs forced Budapest to curb a years-long policy of keeping a lid on home utility bills.

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Virag said the NBH still aimed for positive real interest rates, but should strike a balance between higher rates and an expected turning point in inflation, which could start declining from early next year.

“We need an exit point where the difference between the prevailing base rate and the inflation rate expected for the coming year turns positive with a high likelihood,” Virag said, adding that the bank would maintain tight monetary conditions as long as necessary.

He said a row over European Union funds had a significant impact on monetary policy, adding, however, that he still had “100% confidence” in reaching agreement this year. (Reporting by Gergely Szakacs; Editing by Jacqueline Wong and Clarence Fernandez)


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