June 26, 2020 / 6:07 AM / 9 days ago

UPDATE 2-Hungary central banker sees room to cut rates another 15 bps in July

* Bank can cut base rate by 15 bps once more

* Base rate will bottom out at 0.6%, Virag says

* Bank does not plan to cut rate near 0%

* Declines comment on forint’s drop (Adds more comments)

By Gergely Szakacs and Marton Dunai

BUDAPEST, June 26 (Reuters) - Hungary’s central bank may cut its base rate by another 15 basis points in July, but that is as far as it will go, Deputy Governor Barnabas Virag said on Friday, adding that market pricing of further aggressive rate easing was exaggerated.

The National Bank of Hungary unexpectedly cut its base rate by 15 basis points to 0.75% on Tuesday, its first such move in four years, responding to greater-than-expected damage to the economy from the coronavirus pandemic.

The NBH then described the measure as a “one-off” move to shore up the economy, but just three days later Virag sought to temper market expectations for further rate easing that he said emerged following the surprise cut.

“These expectations are excessive,” Virag said when asked about expectations by some analysts for further aggressive rate easing. “We would like to keep a safe distance from levels near 0% where the Polish or the Czech central banks have cut their base rate. We would definitely not want to reach that range.”

He said the bank had room for another 15-basis-point cut in the base rate next month, but the easing would end there.

“That will be the end of it,” Virag said. “The 0.6% base rate level will be appropriate this year to support economic recovery and strengthen financial stability.”

He said lowering the base rate below that level was ruled out entirely. Virag said forward rate agreements priced in much larger easing than he flagged, which he called “exaggerated.”

“We are still in a data-driven approach,” Virag told Reuters in an emailed reply to questions. “If the economy needs significantly more impetus, we will turn to our targeted programmes.”

Virag said the bank would focus a scheme providing cheap loans to companies via commercial banks and a corporate bond purchase scheme to provide businesses with long-term financing.

Tuesday’s rate cut weakened the Hungarian forint , with central Europe’s worst-performing currency falling to around 355 versus the euro from levels stronger than 350 before the rate cut. Virag declined comment on the falls. (Reporting by Gergely Szakacs and Marton Dunai; editing by Christian Schmollinger, Sam Holmes, Larry King)

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