The Hungarian central bank has no room to “meaningfully” reduce interest rates as a cut may weaken the forint, increasing the burden of households with foreign- currency loans, a central bank official said.
“The currency would presumably weaken as a result and the rise in foreign-currency repayments would curb economic recovery and endanger fiscal stability,” Ferenc Karvalits, deputy governor at the central bank, said at a conference in Szeged, Hungary today. A lower rate would boost lending and the economy “to a minor degree” even if the forint remained stable, he said.
The Magyar Nemzeti Bank kept the benchmark two-week deposit rate at a record-low 5.25 percent on Sept. 27 as the government’s commitment to reduce the budget deficit helped reduce country risks. Hungary agreed to cut the shortfall to below the European Union’s limit of 3 percent of output in 2011, abandoning a fight to foster growth by widening the gap.
The central bank should focus on reducing long-term interest rates via “anchoring inflation expectations and maintaining the credibility of the inflation target” of 3 percent, Karvalits said.
Banks’ lending activity is “very subdued and there’s no sign suggesting that this would change in the short term,” Karvalits said. A stable macroeconomic and regulatory environment is indispensable for lending to pick up, he added.
“The central bank can’t directly influence banks’ lending willingness,” he said.
There is a “realistic” chance inflation will slow to the central bank’s goal and the policy makers will only raise borrowing costs if that becomes inevitable, because it wants to help economic recovery, Magyar Nemzeti Bank President Andras Simor said on Sept. 27. Gross domestic product shrank 6.3 percent last year, the most since 1991.
The August inflation rate dropped to the lowest since June 2009, led by declines in prices for clothing and consumer goods. The central bank in August forecast the consumer-price index would average 4.7 percent this year and 3.5 percent in 2011.
The forint firmed 3.8 percent against the euro in the past month, the best performance among about 170 currencies tracked by Bloomberg.
Karvalits urged the reduction of government debt, which is close to 80 percent of gross domestic product. That keeps financing costs “elevated” and burdens economic recovery, he said.
To contact the reporter responsible for this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net
To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net
http://jodnet.blogspot.com
“The currency would presumably weaken as a result and the rise in foreign-currency repayments would curb economic recovery and endanger fiscal stability,” Ferenc Karvalits, deputy governor at the central bank, said at a conference in Szeged, Hungary today. A lower rate would boost lending and the economy “to a minor degree” even if the forint remained stable, he said.
The Magyar Nemzeti Bank kept the benchmark two-week deposit rate at a record-low 5.25 percent on Sept. 27 as the government’s commitment to reduce the budget deficit helped reduce country risks. Hungary agreed to cut the shortfall to below the European Union’s limit of 3 percent of output in 2011, abandoning a fight to foster growth by widening the gap.
The central bank should focus on reducing long-term interest rates via “anchoring inflation expectations and maintaining the credibility of the inflation target” of 3 percent, Karvalits said.
Banks’ lending activity is “very subdued and there’s no sign suggesting that this would change in the short term,” Karvalits said. A stable macroeconomic and regulatory environment is indispensable for lending to pick up, he added.
“The central bank can’t directly influence banks’ lending willingness,” he said.
There is a “realistic” chance inflation will slow to the central bank’s goal and the policy makers will only raise borrowing costs if that becomes inevitable, because it wants to help economic recovery, Magyar Nemzeti Bank President Andras Simor said on Sept. 27. Gross domestic product shrank 6.3 percent last year, the most since 1991.
The August inflation rate dropped to the lowest since June 2009, led by declines in prices for clothing and consumer goods. The central bank in August forecast the consumer-price index would average 4.7 percent this year and 3.5 percent in 2011.
The forint firmed 3.8 percent against the euro in the past month, the best performance among about 170 currencies tracked by Bloomberg.
Karvalits urged the reduction of government debt, which is close to 80 percent of gross domestic product. That keeps financing costs “elevated” and burdens economic recovery, he said.
To contact the reporter responsible for this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net
To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net
http://jodnet.blogspot.com
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