Two Hungarian rate setters backed 100 bp cut in January

Credit: REUTERS/Bernadett Szabo

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BUDAPEST, Feb 14 (Reuters) - Two of nine Hungarian rate setters wanted to cut interest rates by 100 basis points in January but falls in the forint derailed the central bank's plan to accelerate its pace of easing from a monthly 75 bps, according to minutes of the meeting.

Deputy Governor Mihaly Patai and recently-appointed policy maker Zoltan Kovacs backed the larger reduction at a policy meeting on Jan.30, the first time the National Bank of Hungary did not deliver a unanimous decision since May 2016.

The NBH held off on larger cuts amid a rise in market risks since its mid-January guidance that a faster-than-expected fall in inflation could help accelerate easing.

Deputy Governor Barnabas Virag has said both a 75 bp and a 100 bp cut would likely be on the table at the bank's Feb. 27 meeting.

Data released this month showed inflation in January falling more than expected to 3.8%, mainly to base effects and lower fuel prices. An economic recovery that started in the third quarter stalled in the last three months of 2023.

"Monetary Council members were unanimously of the view that disinflation in the Hungarian economy had been stronger than expected for months," the bank said in the minutes of the January policy meeting.

It said Patai and Kovacs argued for a larger reduction in rates as they expected a quick easing in the factors that had contributed to financial market tensions in the week before the interest rate decision.

That, they argued, in addition to strong disinflation, low demand pressures and developments in analysts' expectations justified a 100 bps cut.

"Council members agreed that it was crucial to ensure financial market stability in order to achieve price stability," the minutes said.

(Reporting by Gergely Szakacs and Krisztina Than; Editing by Kirsten Donovan)

((gergely.szakacs@thomsonreuters.com ; https://x.com/szakacsg ; +36 1 882 3606 ; https://www.reuters.com/authors/gergely-szakacs/))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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