Hungary's central bank to keep base rate at 0.9 percent

The bank could maintain loose monetary conditions until 2018-2019

Hungary's central bank could keep its main base rate at 0.9 percent in the long term even if major central banks start hiking interest rates, Governor György Matolcsy told business daily Világgazdaság.

According to Reuters, Matolcsy, under whose leadership the National Bank of Hungary (NBH) has cut the base rate from 7 percent in steady steps in the past few years, said the bank could maintain loose monetary conditions until 2018-2019.

"We have set ourselves for a base rate level which can work in the long term, which can be maintained even if the Fed carries out a new rate hike cycle in several steps and if potentially the ECB and the Japanese central bank respond to that," he was cited as saying in Tuesday's edition of the paper.

A Reuters poll showed last month that the bank would hold the base rate at 0.9 percent at least until the end of 2017.

Last month the Hungarian bank flagged further possible easing as part of its efforts to increase liquidity in interbank markets and curb borrowing rates.

The bank wants commercial banks to offer cheaper loans to households and companies and to buy government debt, in order to boost economic growth and reduce debt-financing costs.

Matolcsy said the bank, which has provided cheap funding so that commercial banks lend cheaply to companies, was not planning a similar loan programme in the second half of his six-year term, which started in March 2013.

He said it was now up to the government to launch structural reforms to boost competitiveness. He said such reforms were needed in higher education, and cuts in bureaucracy.

"We can support these (reforms) with stability in monetary policy in the next few years," he said.

Matolcsy also said the government should raise this year's budget deficit target to 2.4 percent from 1.7 percent of economic output and spend money on reforms instead.

When asked if he believed an ideal equilibrium exchange rate existed for the forint, Matolcsy reiterated that the bank had no exchange rate target.

"We take it very seriously in the second phase of our current term ... that the most important value in monetary policy is stability," he said. "As for the exchange rate, we don't aim for an assumed, theoretical exchange rate, but for stability."

The forint has remained solid in the past months due to Hungary's improving economic fundamentals and ratings upgrades. On Monday it traded at 305.50 to the euro after Moody's upgraded Hungary's debt into investment grade late on Friday.