Economy
Hungary c.bank should keep rates on hold until IMF deal - rate-setters
The Monetary Council is ready to react “immediately" to market developments if needed, Gerhardt said on Wednesday.
"Members agreed that if perceptions about the economy and the outlook for inflation deteriorated significantly further, it might prove necessary to raise interest rates again," the minutes of the January policy meeting showed yesterday.Gerhardt and Kocziszky are two of four first-year rate-setters who outvoted NBH Governor András Simor and his two deputies last month to unexpectedly keep the benchmark two- week deposit rate unchanged at 7.00%, the highest in the European Union, after back-to-back increases. The three internal members supported a 50-bp rate hike, which was also the market’s call.
“A wait-and-see approach is definitely right until there is an agreement with the IMF and the EU," Gerhardt said. An IMF deal may “strengthen" the case for the “start of a rate-cut cycle," Kocziszky added.
Bloomberg reminded that the forint rose to the highest level against the euro since September yesterday and has strengthened 10%, the most in the world, since Prime Minister Viktor Orbán pledged on 5 January to work toward a “quick" agreement with the IMF and the EU.
Orbán reversed a policy of shunning international aid after the forint plunged 16% in the second half of 2011, the most in the world, and Hungary’s sovereign credit was cut to junk at Moody’s Investors Service, Fitch Ratings and Standard and Poor’s.
“The government clearly and decisively committed itself to an agreement with the IMF," Gerhardt said. “This justifies a calm, wait-and-see attitude."
Both rate-setters believe that a deal with the IMF is necessary for monetary easing, but whether or not rates can be cut also depends on EZ developments, oil prices and inflation.
“I’m reading that London-based economists are saying we can return to a 6.00% rate by the end of the year," Gerhardt said. “This really depends on whether the agreement with the EU and the IMF is reached, when it’s reached, its contents, the amount, and the conditions."
Investors will “calmly wait" for Hungary’s negotiations with the IMF and the EU “as long as they believe the government’s communication is realistic" and that the government “has taken and will take meaningful steps to reach an agreement," Kocziszky said.
Both MPC members agreed that the MPC does not have to react to a one-time spike in the inflation rate, which shot up to 5.5% in January, the highest since April 2010, from 4.1% in December on forint easing and a VAT hike.Policy makers need to focus on trends and not a single piece of data, Gerhardt said.
Both rate-setters rejected that a split had emerged in the Monetary Council with the four first-year rate setters, appointed in 2011 with ruling-party backing, on one side and Simor and his two deputies on the other. The Economy Ministry objected to two 50 basis-point rate increases in November and December.
“There are seven independent people" in the Monetary Council, Kocziszky said. “On fundamental questions, I think there are no differences between the seven. There are differences on how I evaluate certain processes and how they manifest themselves in my context."
"Members agreed that if perceptions about the economy and the outlook for inflation deteriorated significantly further, it might prove necessary to raise interest rates again," the minutes of the January policy meeting showed yesterday.Gerhardt and Kocziszky are two of four first-year rate-setters who outvoted NBH Governor András Simor and his two deputies last month to unexpectedly keep the benchmark two- week deposit rate unchanged at 7.00%, the highest in the European Union, after back-to-back increases. The three internal members supported a 50-bp rate hike, which was also the market’s call.
“A wait-and-see approach is definitely right until there is an agreement with the IMF and the EU," Gerhardt said. An IMF deal may “strengthen" the case for the “start of a rate-cut cycle," Kocziszky added.
Bloomberg reminded that the forint rose to the highest level against the euro since September yesterday and has strengthened 10%, the most in the world, since Prime Minister Viktor Orbán pledged on 5 January to work toward a “quick" agreement with the IMF and the EU.
Orbán reversed a policy of shunning international aid after the forint plunged 16% in the second half of 2011, the most in the world, and Hungary’s sovereign credit was cut to junk at Moody’s Investors Service, Fitch Ratings and Standard and Poor’s.
“The government clearly and decisively committed itself to an agreement with the IMF," Gerhardt said. “This justifies a calm, wait-and-see attitude."
Both rate-setters believe that a deal with the IMF is necessary for monetary easing, but whether or not rates can be cut also depends on EZ developments, oil prices and inflation.
“I’m reading that London-based economists are saying we can return to a 6.00% rate by the end of the year," Gerhardt said. “This really depends on whether the agreement with the EU and the IMF is reached, when it’s reached, its contents, the amount, and the conditions."
Investors will “calmly wait" for Hungary’s negotiations with the IMF and the EU “as long as they believe the government’s communication is realistic" and that the government “has taken and will take meaningful steps to reach an agreement," Kocziszky said.
Both MPC members agreed that the MPC does not have to react to a one-time spike in the inflation rate, which shot up to 5.5% in January, the highest since April 2010, from 4.1% in December on forint easing and a VAT hike.Policy makers need to focus on trends and not a single piece of data, Gerhardt said.
Both rate-setters rejected that a split had emerged in the Monetary Council with the four first-year rate setters, appointed in 2011 with ruling-party backing, on one side and Simor and his two deputies on the other. The Economy Ministry objected to two 50 basis-point rate increases in November and December.
“There are seven independent people" in the Monetary Council, Kocziszky said. “On fundamental questions, I think there are no differences between the seven. There are differences on how I evaluate certain processes and how they manifest themselves in my context."
