Exclusive-Hungary central bank could cut base rate to 10-11% by year-end -rate-setter

BUDAPEST (Reuters) - Hungary's central bank could cut its base rate to 10-11% by the end of the year from 13%, a rate-setter told Reuters, warning however against big or unexpected moves amid the fallout from a larger-than-expected rate cut in Poland last week.

The National Bank of Hungary cut its one-day deposit rate by 100 basis points to 14% last month, continuing to unwind rate hikes now that European Union's highest inflation, which peaked above 25%, is finally decelerating.

Gyula Pleschinger, an influential policy maker on the nine-member committee, said there was a "good chance" the NBH could align its one-day deposit rate with its 13% base rate when it meets on Sept. 26, unwinding all of last October's emergency rate hikes to shore up the forint from record lows.

Once that alignment takes place, the NBH will simplify its policy toolkit further, which could include making the interest rate corridor around its base rate symmetrical, he said.

"From that point onwards, we will take all of our steps in a very serious, data-driven mode, looking at the market, tracking the market," Pleschinger said.

"This includes the possibility of a pause, if the market requires, but also continuing (rate cuts) with up to 100 bps," he said, adding that the base rate could be lowered to 10-11% by the end of 2023, largely in line with analyst forecasts for 10.75%.

He said inflation would fall into single digits by the end of the year but that this disinflationary trend would slow down next year in part due to excise tax hikes, which are expected to boost 2024 inflation by 0.7-1%.

Pleschinger said inflation could average 5-6% next year, well above the bank's June projection for 3.5-5.5%, adding that the precise forecast would be included in the bank's September inflation report.

"Disinflation next year will obviously be slower than this year, but we may reach the top of the (2% to 4%) target range by the end of next year," Pleschinger said.

Asked about the fallout from the National Bank of Poland's much-larger-than-expected 75 bps interest rate cut last week that saw regional currencies weaken, Pleschinger said Hungary's central bank should tread carefully.

"For us, this means that we need to very carefully consider all of our planned steps, because we are much more vulnerable than Poland," he said, adding that big swings in the forint's exchange rate were not welcome.

(Reporting by Gergely Szakacs; Editing by Hugh Lawson)

By Gergely Szakacs and Krisztina Than