Hungary central bank could start cautious rate cuts once CPI slows

Hungary’s January annual inflation is expected to rise above 25per cent but in February price growth will start slowing which could then allow the central bank to gradually start reducing its interest rates, the minister for economic development said on Sunday.

Marton Nagy, a former central bank deputy governor, told state radio that the “very high” interest rates made the government’s job difficult and harmed the economy.

Prime Minister Viktor Orban’s government is trying to avoid economic recession at a time when inflation is still running well above 20per cent.

Nagy said inflation could slow to single digits by the end of the year.

“When there is a turnaround in inflation, I think that the central bank can also justifiably take a turn in policy...and they can start cautiuously reducing interest rates,” Nagy said, talking about rate cuts for the second time this week.

The central bank declined to comment in an emailed response to Reuters on similar remarks made by Nagy in a weekly newspaper on Thursday.

On Tuesday, the central bank left its base rate at 13per cent and said it would keep its one-day deposit rate at 18per cent until it sees “a trend improvement” in risk assessment. The bank is due to release its fresh inflation forecasts in March.

Credit ratings agency S&P on Friday cut Hungary’s long- and short-term foreign and local currency ratings to ‘BBB-/A-3’ from ‘BBB/A-2’, citing persistently high inflation and external pressures.

Nagy told the radio that he did not expect a similarly “drastic” move by Moody’s during a debt rating review due in early March. He also said Hungary’s economic fundamentals were improving, and energy prices have dropped.