Hungary has room to cut rates, Grexit risk manageable - economy minister

By Krisztina Than and Gergely Szakacs

BUDAPEST (Reuters) - Hungary has room to cut interest rates further as the global market backdrop is supportive and the forint's exchange rate is stronger than the level projected in the 2015 budget, Economy Minister Mihaly Varga said.

He also said the main economic risks Hungary faced at the moment were uncertainty about the conflict in Ukraine and a potential exit of Greece from the euro zone, which could affect the local bond market and currency due to spillover effects.

But Varga said any impact from a potential "Grexit" would be much smaller than in Serbia, Romania or Bulgaria where -- unlike in Hungary -- Greek banks have a presence.

On the positive side, low crude prices were boosting Hungary's big current account surplus, while the European Central Bank's bond-buying programme was helping its bonds, he told Reuters in an interview late on Thursday.

He said the central bank made a "reasonable and good decision" to cut interest rates at its policy meeting on Tuesday, and that there could be room for more easing. (NBHI)

"The window of opportunity to take borrowing costs further down should be used," Varga said. "This saves costs for the state, means savings for companies, and for households."

The central bank, which is led by a close ally of Prime Minister Viktor Orban, cut its main interest rate to a record low 1.65 percent and said there could be scope for further easing as inflation pressures were set to remain moderate.

Varga also noted the forint exchange rate "is still below (firmer) than the level we projected for this year, so all in all, I think there is no reason to worry."

At 1106 BST the forint (EURHUF=D3) traded at 309.11, slightly stronger than the 310.10 projected in the budget.

RATINGS UPGRADE?

The minister said he expected at least one of the three main credit agencies to upgrade Hungary's sovereign rating to investment category this year. Last Friday, Fitch changed its outlook to positive from stable.

The country has been rated "junk" by all rating agencies for years, due to its high debt and economic policies that have saddled the banking sector with high taxes.

Varga said the government's relations with commercial banks were improving and a lot would depend on whether the credit market picked up in 2016.

He said the government aimed to seal a deal to buy Budapest Bank from GE (GE.UL) by December, and merging the bank with MKB - which it bought in 2014 - would be a "highly logical step."

Other than that, the state was not planning to buy any more systemically-important banks, he reiterated.

(Reporting by Krisztina Than and Gergely Szakacs; editing by John Stonestreet)