BUDAPEST, Hungary — A divided Hungarian central bank yesterday cut interest rates for the fourth consecutive time in an effort to pull the EU member out of recession even though inflation is running high.

Central bank head Andras Simor, who earlier this year openly clashed with Prime Minister Viktor Orban, said that the lowering the main lending rate 25 basis points to 6.0 per cent was supported by a “thin majority.”

Four government-appointed members of the bank’s rate-setting monetary policy council supported the cut while Simor, whose term expires in March, and his two deputies wanted rates to stay unchanged.

The council was divided along the same lines in each of the three recent cuts in August, September and October.

The move was in line with market expectations, and the Hungarian currency, the forint, remained steady after the decision and was last trading at 280.19 to the euro.

In a swipe at Orban, who has been criticised at home and abroad for his at-times unorthodox economic policies, Simor said that recent austerity measures were fuelling inflation and hurting growth.

“Inflationary pressure was still strong due to the recent austerity measures including several tax hikes, which are good for the deficit, but bad for growth,” Simor said.

Inflation in October hit six per cent, down from 6.6 per cent in September, the highest in just over three years. It has been over five percent all year, the highest in the 27-nation European Union.

Since the beginning of October, Hungary has announced three rounds of austerity measures aimed at bringing in keeping Hungary’s budget deficit under 3.0 per cent, thereby avoiding losing access to vital EU cohesion funds.

The third set of measures included the making permanent from 2013 of a controversial bank sector “crisis” tax originally introduced in 2010 as a temporary “windfall” levy.

The country is in recession, meanwhile, with the government forecasting gross domestic product will contract 1.2 per cent this year.

Last week ratings agency Standard and Poor’s downgraded Hungary to BB — it was already rated “junk” at all three main agencies — and a government spokesman said that there was little hope of a International Monetary Fund (IMF) deal before the end of the year.

Hungary is involved in long-running negotiations with the IMF and EU over a 15-billion-euro credit line but the talks have been bogged down for months.

William Jackson at Capital Economics in London said that with the economy “sliding deeper into recession,” more rate cuts are to be expected.

But with a deal with the IMF looking “increasingly unlikely” and once sentiment on financial markets, as expected, turns sour, the central bank could well be forced to start tightening again, the economist said.

AFP