For more from the Reuters Central European Investment
Summit, click on:
http://www.reuters.com/summit/CentralEuropeanInvestment09?pid=500
* Rates cuts to come but will be gradual and predictable
* No bank capital adequacy ratio seen under 8 pct limit
* GDP to shrink in 2010 but 3.5 pct growth seen in 2011
(Updates with detail)
By Balazs Koranyi
VIENNA, Sept 29 (Reuters) - Hungary should not need to use
the remainder of its package of International Monetary Fund-led
aid, though its recovery remains fragile as it returns to market
financing, the central bank's deputy governor said on Tuesday.
The central bank will continue to aid recovery but further
cuts in interest rates will have to remain predictable and
gradual to maintain investor confidence, Ferenc Karvalits told
the Reuters Central European Investment Summit.
"The current government would like to show, and up until
now, they've been successful, that they can return to market
financing," Karvalits said.
"Therefore we expect that in the upcoming period, until the
elections, we won't need additional sources from the IMF or the
from the European Union. These are just safety cushions."
Hungary was the first European Union country to seek
international aid late last year and secured a package of around
20 billion euros from the IMF, EU and the World Bank to prevent
banking, budget and balance of payments meltdowns.
It has so far drawn around 14 billion euros of the package.
The country faces general elections in April or May next
year where the opposition conservative Fidesz is almost certain
to defeat the ruling Socialists and has promised to rewrite the
2010 budget if it wins.
Karvalits said that the central bank remains ready to
continue with rate cuts after 200 basis points worth of easing
to 7.5 percent over the past three months, but would follow a
gradual approach.
"We are thinking in terms of gradual rate cuts because we'd
like to be more predictable," Karvalits said. "We don't want to
make mistakes with very quick cuts, then turning back."
"Inflation and real economic growth still call for more
monetary easing (but) we have to make our decisions according to
the external conditions as well.
Signals from the European Central Bank and the Fed show
monetary tightening is still some way off and Hungary has time
to gradually cut its rates and not worry about going into a
tightening cycle on core markets, he added.
"The BOE, the Fed and the EBC signalled that they will keep
rates at low levels for a while, so it gives some room for us,"
Karvalits said.
BANKS WELL CAPITALISED
Ratings agency Moody's said on Tuesday that while Hungary's
rating outlook remains negative, it could be elevated to stable
if fiscal stabilisation continues and structural reforms are
widened. []
Karvalits said that the country's bank sector has been more
resilient to this year's contraction -- seen at 6.7 percent of
the economy -- and profitability has been better than expected.
"Significant portfolio deterioration will take place but the
profitability will remain positive in most cases," Karvalits
said. "And according to our base case (scenario) in no instance
will capital adequacy cross the 8 percent level."
The central bank has predicted non-performing loan rates in
the bank sector to rise to 13-15 percent by the first quarter of
next year from around 4 percent at the start of 2009.
Karvalits said Hungary's economy, after contracting in both
2009 and 2010, would expand by 3.5 percent in 2011 as efforts to
turn the economy around will have matured and the external
environment improves.
"Net exports, investments, private consumption, government
spending, all together compared with this year, will be in an
expansionary mode," Karvalits said. "And therefore we assume
that in 2011, we'll be around 3.5 percent, which is I think
already over the potential."
(Reporting by Balazs Koranyi; editing by Patrick Graham)
