Hungary’s central bank vice governor said at the weekend there is still room for a further easing of monetary policy after a 50 basis-points cut — altogether 250 basis points over the past four months — to 7pc in the key rate earlier this month as risk spreads are narrowing, while inflationary pressures remain tame and there is plentiful spare output capacity.
“Taking into account the huge negative output gap and from the point of view of (inflation), monetary easing is conceivable,” Julia Kiraly said on the sidelines of a banking conference in Prague, wire services reported.
The vice governor said the prudent and unanimous strategy of the central National Bank of Hungary (NBH) is to continue easing rates as the country’s borrowing costs decline.
Borrowing costs should continue to fall as the country’s economy is on track for a sustainable recovery, Ms Kiraly said. The fact that inflation is likely to remain below the central bank’s target and the stability of the forint will help to pave the way for a further easing in interest rates, the NBH vice governor added.
The Hungarian currency’s recent gains against the euro are largely the result of global factors, Ms Kiraly noted.
The NBH vice governor also said she expected non-performing loans to peak at around 10pc in the first half of next year, below the central bank’s previous estimates of 13-15pc.
Bank provisioning would rise threefold, Ms Kiraly added.
“Instead of NPLs (non -performing loans), we prefer to use loan-loss ratio provisioning, which was 1pc before the crisis in Hungary and according to our forecast, it will rise to 3pc,” Ms Kiraly said.
Calmer markets diminished risks to financial stability. “Taking into consideration in the recent past that financial markets became really quiet, we do not see a high risk in financial stability, but in our view the financial market situation is still fragile,” Ms Kiraly said.