BUDAPEST (Reuters) -Hungarian central bank Governor Gyorgy Matolcsy called on Prime Minister Viktor Orban’s government on Wednesday to aid efforts to curb inflation, saying the country faced risks from rising debt servicing costs and slower convergence.
Hungarian inflation slowed for the first time since the middle of 2021 in February, although only by a touch as the headline rate stayed above 25%, giving no relief yet to a central bank maintaining a hawkish policy.
The central bank left interest rates unchanged last week, as expected, and said it would tighten liquidity conditions further, defying government pressure to cut borrowing costs amid a sharp economic slowdown.
“Is the central bank governor offended?
Is he frustrated? Has he fallen out with the prime minister? No. God forbid. There is a disagreement in principle between the government and the central bank,” Matolcsy told parliament.
“The National Bank of Hungary must fight against inflation and we ask the government’s help in this effort,” Matolcsy said after data showed February inflation coming in at 25.4% year-on-year, in line with market forecasts.
The European Commission projects Hungary’s headline inflation rate at 16.4% this year, the highest in the European Union, boosted by a surge in food price growth to nearly 50% in January and double-digit rises in services and energy prices.
Matolcsy, Orban’s former economy minister, said a rift between the central bank and the government emerged in 2021 as inflation started rising, with the bank “slamming on the brakes,” while the government “pushed the accelerator”.
Matolcsy said Orban had ignored several calls from the central bank to launch economic reforms, calling the crises of the past three years a missed opportunity, with Hungary falling behind its EU peers in terms of productivity.
“The return from here will be very difficult,” Matolcsy said.
“Breaking something is very ease, but fixing it can be very difficult.”
Matolcsy said all price caps still in place, including those on some basic foods, should have been scrapped as of the start of the year as they have added some 3% to 4% to inflation.
He said debt servicing costs would double to around 4.6% of economic output by next year due to high interest rates, while also criticising Orban’s efforts to lure large battery makers to Hungary, saying the industry produced low added value.
“Without reforms, there is no sustainable convergence.
Then it is only debt or foreign investment, which can work as an even greater trap.”
(Reporting by Gergely SzakacsEditing by Christina Fincher)
