Hungary flags pivot to cutting EU’s highest interest rates

BLOOMBERG 

Hungary’s central bank unexpectedly signalled its first potential step towards cutting the European Union’s highest key interest rate, with policymakers pointing to an outlook of rapidly slowing inflation. The forint dropped against the euro.
Deputy Governor Barnabas Virag caught investors by surprise after months of pushing back against government pressure to lower the 18% key interest rate to aid the recession-hit economy. Central bankers had until now cited inflation of above 25% — also the highest in the EU — and a wobbly currency as key obstacles to looser policy.
In an interview, Virag said that market sentiment had improved so much recently that it had opened the way for a “multi-step” path to rate normalisation. That could potentially begin next week with a “significant” cut to the top end of the rate corridor, which is now at 25%.
“The question of changing the 18% key interest rate can only be on the agenda of subsequent rate decisions,” he told the Vilaggazdasag daily, adding a “patient approach prioritising market stability” was still needed.
The forint dropped as much as 1.8% against the euro after the comments, the biggest daily decline among emerging-market currencies.
The decision to cut the key rate — which is now set daily by central bank — would be made at monthly policy meetings, the National Bank of Hungary’s press office told Bloomberg to clarify Virag’s comments.