Investors might not welcome another Hungarian rate cut- minister

BUDAPEST Thu Feb 6, 2014 4:40am EST

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BUDAPEST Feb 6 (Reuters) - Hungarian interest rates have fallen to a point where Hungarian debt may become unattractive to investors, Economy Minister Mihaly Varga said on Thursday, signalling that a steady monetary easing campaign could be nearing its end.

But Varga also told the public television channel M1 that it was up to the National Bank of Hungary's Monetary Council to decide on interest rates.

The bank, run by Prime Minister Viktor Orban's close ally Gyorgy Matolcsy, has cut interest rates from 7 percent in 2012 to a record low of 2.85 percent to help an economic recovery, and has flagged further possible easing.

After the unbroken series of rate cuts, investors are pondering whether the bank may halt its easing campaign after capital withdrawals in the past two weeks caused a rout on emerging markets around the world, also hitting the forint.

Varga restated his view that that the forint's volatility was largely due to international factors, and said Hungary was not comparable to Turkey as Hungary had a large current account surplus and strong fundamentals.

"But of course it's a fact that the rate cutting cycle is getting close to a point where investors are already starting to wonder whether it's worth lending or not - let's leave it up to the Monetary Council how they decide," Varga said.

Asked if he believed investors were trying to push the bank into a rate hike, he said: "Right now, I think international impacts are much more important in this story than speculation against the Hungarian base rate."

In the minutes of last month's rate-setting meeting, published on Wednesday, the Monetary Council said uncertainty over the global financial environment warranted a cautious approach to monetary policy, but there could be room for more easing. The bank next meets on Feb 18. (Reporting by Gergely Szakacs; Editing by Kevin Liffey)

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