July 13th, 2012

Base rate cut unlikely in short term, says central banker

Hungary’s inflation outlook and the expected start of credit talks with the IMF and EU next week do not warrant an interest rate cut and premature easing may backfire by eroding the central bank’s credibility, National Bank of Hungary (NBH) deputy governor Julia Kiraly said on Thursday.

Ms Kiraly, a member of the Monetary Council of NBH, said the Council had clearly stated the preconditions for a rate cut – a decreasing inflation rate and a trend towards substantially lower risk premium.

The bank has held its main base rate steady at 7 percent, the EU’s highest, in the past six months.

“All in all, from an inflation-targeting point of view I do not see an opportunity for looser monetary conditions in the short term,” Kiraly wrote in an emailed reply to Reuters questions.

“I do not see that the start of the IMF/EU talks alone would indicate a ‘natural shift’ toward monetary easing. As it was indicated in the (June) minutes published on Wednesday, not the first visit, but the agreement itself, what matters,” Ms Kiraly added.

The bank’s next meeting is due on July 24 and on Wednesday two other rate setters signalled there may be room for a rate cut this month after the start of IMF talks

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