The Hungarian central bank has launched a robust defence of
its independence, following last months attacks from the
new government that interest rates had been kept too high in
Prime Minister Viktor Orban, who was sworn into office on
Friday, criticized the central bank during the national
elections last month for keeping interest rates too high. And
Zoltan Pokorni, deputy chairman of the incoming centre-right
Fidesz Hungarian Civic Union party, said last month that
MNB President Andras Simor should resign over investments in
But Julia Kiraly, deputy governor of the Hungarian National
Bank (MNB), said the politicization of the monetary policy
debate would not affect the central bank.
Out monetary policy works outside of the political
campaign and we are members of the European Central Bank
network of central banks, which helps to preserve our
independence. She said our independence helps
to address time-sensitivity of economic programmes,
triggered by changes in government.
The dogs bark but the caravan moves on, she
said, citing a proverb meaning that a well-run project will not
be derailed by noisy protests.
Kiraly said the MNB would continue its drive to cut interest
rates to stimulate growth as low inflation and the Greek
bailout package boosts monetary policy firepower. The MNB cut
the two-week repo rate by 25 basis points (bps) to an
record-low 5.25% last month. The central bank has lopped 4.5%
off the benchmark rate since July 2009.
Economic activity is much below potential, which means
it has a downward pressure on inflation, she said.
Consumer prices fell to 5.7% in April from 5.9% in March. And
Kiraly said that inflation is likely to meet the central
banks 3% target later in the year.
Core inflation is significantly declining, she
said, adding that stronger global risk appetite and strength of
the currency also gave the central bank room to cut rates. But
she said the MNB retained the right to intervene in foreign
exchange markets to curb excessive strengthening of the
currency if the exchange rate level was not in line with
Orban, who won a landslide victory, said last month that the
deficit was set to overshoot this years target 3.8% of
GDP set by the IMF as part of its bailout package. Kiraly said
she was optimistic that fiscal consolidation would
kick in because the new government has an overwhelming
Hungarys public debt to GDP ratio is 80% compared with
40% in central and eastern Europe. Kiraly said it would take
between five to 10 years for the debt stock to fall to 60%
in line with the European Unions Stability and
She stepped up her calls to curb foreign currency loans in
the country. We have huge accumulated foreign currency
debt and unhedged positions, which need to be phased out,
endorsing EBRD president Thomas Mirows call on Thursday
for short-term unsecured consumer lending in foreign currency
to be phased out across the region.