Hungarian Monetary Council members Ferenc Gerhardt and Gyorgy Kocziszky comment on the outlook for interest rates and the country’s expected agreement with the European Union and the International Monetary Fund on financial assistance.
They spoke in an interview in Budapest today.
On Hungarian interest rates:
“The fact that the date for the IMF/EU/ECB talks has been set gives hope that things will improve. We want to put in place an interest rate environment that gives incentives ahead of the start of a growth cycle.
‘‘Naturally there can be a rate cut this month, the possibility is there. I really wish the president didn’t have to say at the time of the first rate cut that it was a close decision. I would like this decision to have as much support as possible because this would show strength.
‘‘It must be stressed that this should be a very gradual process, cutting interest rates by 200 basis points to 300 basis points in one step is nonsense. If our benchmark rate were between 12 percent and 15 percent, the pace would be 50 basis points. However our rate is half that. The Monetary Council has to gradually react to changing risk and economic conditions.
‘‘Safety is above all else. The country couldn’t handle another 8 to 10 forint decline in the exchange rate.
‘‘If we really strive for growth, the interest rate in the euro zone should be around 1 percent and interest rates in countries outside the euro zone should be between 4 percent to 5.5 percent.’’
‘‘Interest rates have been on hold since January, which in itself means a tightening of sorts since our risk premia and the exchange rate have become more favorable.’’
On IMF-EU negotiations:
‘‘Financial markets and serious economists see negotiations starting on July 17. When does a marriage really start? Perhaps when it does it’s already over.’’
‘‘The June inflation data are part of the inflation path and absolutely fits the picture. We continue to believe that we’ll meet the inflation target by the end of 2013.
‘‘The issue of economic growth has become significantly more accentuated, whereas until recently fiscal aspects had more weight. Inflation is still a holy cow, however it’s no longer a fetish.’’
‘‘We look beyond the bad news, such as oil prices and one- time tax increases.
‘‘We’re aware that the reasons behind the gradual increase of the inflation forecast aren’t natural factors, but rather government measures such as taxes and changes in commodity prices.
‘‘The ECB’s policy shows that the bank took a counter- cyclical step. What it says is that inflation is fine but growth is more important and therefore it cut interest rates. The same applies to the United States, Japan or India.’’
On the transaction tax:
‘‘The ECB will tell whether the transaction fee infringes upon the independence of the central bank.
‘‘Let’s make it clear that this won’t influence the rate policy of the Monetary Council. This is a fee that somebody should pay and the decision whether it will be the central bank or someone else has yet to be made.’’
‘‘We shouldn’t get ahead of the ECB opinion, the execution decree or the assessment of what kind of burden this will mean.’’
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