Economy
Járai thinks Hungary may have room for 50 bps rate cut in 2005
“Maybe," Járai said when asked if the central bank could keep up the pace of half percentage point cuts.
“There might be further room if the international environment remains good and inflation low. We may have further room," he said in an interview on the sidelines of the meeting of EU finance ministers and central bankers.
The central bank will hold its next rate meeting on 19 September. It surprised analysts and the markets on 22 August when it trimmed the base rat by 50 basis points to 6.25%, instead of the widely expected 25 bps. Most analysts see official rates bottoming out at 5.5% in this easing cycle.
The latest minutes from the August policy meeting of the central bank revealed that a sizeble majority of the Council members was inclined to cut interest rates more aggressively than expected. Eight board members voted for the eventual 50-bp rate cut, while five members supported a more moderate 25-bp reduction.
While inflation at 3.6%, close to the central bank's 3% inflation target, had given the bank scope for last month's aggressive move, Járai said there were a number of uncertainties surrounding the next move. One of these is whether the forint retains its strength and how the debate shapes up on the bank's recently expanded monetary policy committee.
“I am not 100 percent sure that the strength of the forint reflects the macro-economic fundamentals," Járai said.
The HUF, which closed at 244.45 to the euro on Friday, has rallied in recent months toward the top end of its 240.01-324.71 trading range against the euro. In June when rate cuts began, it traded around 255 against the euro.
Strong investor demand for emerging market debt has buoyed the currency. However, the Hungarian government has been issuing euro-denominated debt and Hungarian banks have been offering consumers euro-denominated mortgages and car loans, creating extra demand for the currency.
Járai called this “very risky" for the forint's outlook.
Járai also said that budgetary overshoots make him sceptical that Hungary will be ready to join the euro zone in 2010.
The government needs to cut expenditure by 7-10% to shape up its budget, he said, adding that this would be extremely difficult given elections next spring. After the elections, time will be growing extremely tight.
“The possibility for euro adoption by 2010 is growing less and less. It is still possible but to do that will require very, very substantial reforms ," he said.
“I can say it will be hard, almost improbable , but I would not say impossible."
What might keep the government on track would be a public outcry should Hungary look in danger of missing euro adoption by 2010, the same time as Poland and the Czech Republic are expected to join the single currency, he said.
Járai was critical of the government's budget forecasts , unveiled on Monday, which predicted a budget deficit next year 2.9% against 3.6% expected this year.
He said these deficit predictions did not reflect fundamental budget reforms, rather statistical gimmicks . For instance, he described the government's move to take highway construction financing off budget as taking money out of one pocket and putting it into another.
“I am not saying they are manipulated figures, but most of them are statistical reforms and the real reforms are missing," he said.
A Eurostat delegation arrives in Hungary next week to examine the handling of highway financing.
“There might be further room if the international environment remains good and inflation low. We may have further room," he said in an interview on the sidelines of the meeting of EU finance ministers and central bankers.
The central bank will hold its next rate meeting on 19 September. It surprised analysts and the markets on 22 August when it trimmed the base rat by 50 basis points to 6.25%, instead of the widely expected 25 bps. Most analysts see official rates bottoming out at 5.5% in this easing cycle.
The latest minutes from the August policy meeting of the central bank revealed that a sizeble majority of the Council members was inclined to cut interest rates more aggressively than expected. Eight board members voted for the eventual 50-bp rate cut, while five members supported a more moderate 25-bp reduction.
While inflation at 3.6%, close to the central bank's 3% inflation target, had given the bank scope for last month's aggressive move, Járai said there were a number of uncertainties surrounding the next move. One of these is whether the forint retains its strength and how the debate shapes up on the bank's recently expanded monetary policy committee.
“I am not 100 percent sure that the strength of the forint reflects the macro-economic fundamentals," Járai said.
The HUF, which closed at 244.45 to the euro on Friday, has rallied in recent months toward the top end of its 240.01-324.71 trading range against the euro. In June when rate cuts began, it traded around 255 against the euro.
Strong investor demand for emerging market debt has buoyed the currency. However, the Hungarian government has been issuing euro-denominated debt and Hungarian banks have been offering consumers euro-denominated mortgages and car loans, creating extra demand for the currency.
Járai called this “very risky" for the forint's outlook.
Járai also said that budgetary overshoots make him sceptical that Hungary will be ready to join the euro zone in 2010.
The government needs to cut expenditure by 7-10% to shape up its budget, he said, adding that this would be extremely difficult given elections next spring. After the elections, time will be growing extremely tight.
“The possibility for euro adoption by 2010 is growing less and less. It is still possible but to do that will require very, very substantial reforms ," he said.
“I can say it will be hard, almost improbable , but I would not say impossible."
What might keep the government on track would be a public outcry should Hungary look in danger of missing euro adoption by 2010, the same time as Poland and the Czech Republic are expected to join the single currency, he said.
Járai was critical of the government's budget forecasts , unveiled on Monday, which predicted a budget deficit next year 2.9% against 3.6% expected this year.
He said these deficit predictions did not reflect fundamental budget reforms, rather statistical gimmicks . For instance, he described the government's move to take highway construction financing off budget as taking money out of one pocket and putting it into another.
“I am not saying they are manipulated figures, but most of them are statistical reforms and the real reforms are missing," he said.
A Eurostat delegation arrives in Hungary next week to examine the handling of highway financing.
