BUDAPEST (Reuters) - Hungary’s new monetary easing cycle launched last month will “definitely” consist of several steps, and will be mainly shaped by the inflation outlook, the central bank’s deputy governor told Reuters on Thursday.
The bank cut its main interest rate for the first time in eight months on March 24, by 15 basis points to 1.95 percent, as inflation evaporated. The rate is still above the 1.5 percent benchmark in Central European heavyweight Poland.
Deputy Governor Adam Balog said he believed there was still some disinflationary risk in Hungary, even though recent months’ data did not show this.
“At this moment I definitely see a need for a longer easing cycle, taking into account that this (disinflationary risks) is a widespread risk, and at this moment we cannot see which scenario will actually materialize,” Balog said in an interview.
He said Hungary need not be constrained from cutting its rate below the Polish benchmark.
“It is conceivable that we go lower (with our rate cuts), but it is also conceivable that we don‘t,” he said.
He also said recent forint gains pointed “in the direction of a longer, rather than shorter easing cycle.”
Balog reiterated that the bank had no exchange rate target, adding that it did “not have any direct intention to weaken the forint.”
“If the exchange rate has an impact on inflation that prompts us to act, then we will continue this easing cycle. Monetary policy still has room for maneuver,” he said.
The forint has firmed more than 1 percent versus the euro since last month’s cut.
Balog said the bank would tread cautiously with its rate cuts, mindful of geopolitical and financial stability risks, such as the conflict in Ukraine, or Greece’s debt crisis.
“I would not like the main message to be that (Hungarian rate cuts) will be always 15 basis points. Could be a bit bigger or a bit smaller,” he said.
Balog also said he could not rule out an extension beyond the end of 2015 of the bank’s “funding for growth” program, but it did not want to exceed the 2 trillion forint cap it has set on the cheap loans.
Writing by Krisztina Than; Editing by Ruth Pitchford