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IMF says Hungary should end interest rate cuts

Hungary's central bank should keep its benchmark interest rate on hold and adopt a tightening bias to avert any negative impacts from global market uncertainties, the International Monetary Fund (IMF) said late on Friday.

The main facade of the Hungarian central bank.
Bloomberg/Contributor | Bloomberg | Getty Images
The main facade of the Hungarian central bank.

In its latest country report based on meetings with Hungarian officials in March and April, the IMF said Hungary's interest rate differentials have reached record lows and further rate cuts could be risky to the country's bond markets.

Hungary's central bank (NBH) has been cutting its base rate continuously since August 2012, to a record low of 2.4 percent, and has left the door open to further easing.

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"Staff... urged the authorities to keep the policy rate on hold, maintaining the present accommodative policy stance until there are signs that inflationary pressures are building up," the IMF said.

"In the event that external conditions deteriorate sharply, the NBH should also stand ready to tighten."

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The IMF sees Hungary's economy growing by 2 percent this year, slightly below latest government projections for about 2.5 percent. It expects growth to slow slightly to 1.7 percent next year.

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