a new tax reform is needed in Hungary
György Matolcsy, Governor of the Central Bank, will hold an online press conference after the Monetary Council of the Magyar Nemzeti Bank (MNB) raised the key interest rate by 100 basis points on Tuesday. The asset has now risen 5.4 percent.
The central bank again made a significant increase, raising the base rate again by 100 basis points after March. |
The raise did not surprise analysts anyway. That was just the amount of anticipation. The forint did not move the decision too much either, ie the markets also priced such a large increase in advance.
The president of the central bank said at a press conference that they have continued and will continue to fight inflation. Accordingly, it was decided today to increase by 100 basis points.
György Matolcsy emphasized: Hungary has successfully managed the crisis caused by Covid. The Magyar Nemzeti Bank played a significant role in this, when it provided financial resources worth HUF 11,000 billion to the Hungarian economy. Of this, they were able to increase the state’s funding sources by HUF 6,800 billion and the companies by HUF 4,600 billion.
We also won the 2010-19 period and the 2020-22 crisis management. The challenge is to win this decade, which will be totally different from the previous ones
– said the governor, who pointed out that the financial balances in Hungary had deteriorated.
The market equilibrium is upset, the release of inflation, which is not only felt in Hungary, shows the upset of the supply-demand balance. The government is right to try to curb double-digit inflation rates with price stops. Thus, inflation in Hungary may be around 9 percent.
The other balance that has deteriorated is the balance of the budget. The previous general government balance below 3 percent was a huge achievement. However, this has gone wrong. it must be fought to restore it. The third balance that has been upset is the current account. That is why they made such a decision to make it zero again.
Catch-ups were successful in 2010, with nearly one million jobs created, but productivity not growing as much as it should have. So a quality catch-up is needed.
According to György Matolcsy, a new tax reform is needed.
It needs to be green, digital and sales tax focused. This is a good direction, according to the president of the central bank. The rebalancing of the current account is partly driven by the establishment of a general government balance.
According to György Matolcsy, monetary policy, the central bank will do everything, but it is necessary to support the budget. To this end, the MNB recommends that the government return to a balanced policy of growth and catching up. This was extremely successful in the 2010s. It also knows how to deal with the recent crisis in the country.
A two-year economic stabilization program is being proposed, work on which has already begun, and will be handed over to the government in the coming weeks.
We can succeed in meeting the three major challenges and sustaining growth, building sustainable catch-up, if monetary policy, fiscal policy and price regulation, the triangle of state regulation, work together. Therefore, the MNB will continue to fight for inflation and help the government with further proposals.
Barnabás Virág, the vice-president of the central bank, said at the press conference that inflation dominance caused almost half of the annual rate due to external international factors and rising food and fuel prices.
The impact of strong domestic demand is already reflected in inflation. At the beginning of the year, three times as many revaluations took place in Hungary as the average of the last ten years, so commodity prices fluctuated very quickly. The process will continue in the coming months. The central bank expects a significant revaluation in April as well, and inflation is expected to rise by 9 percent.
For the year as a whole, average inflation in 2022 could be in the upper third of the 7.5-9.8 percent range.
In the next quarter, war and sanctions will be the main drivers of inflation, and what will happen to government price stops. Overall, the inflationary impact of the war is 2.5-3 percentage points this year. It is expected that in 2023, inflation can only start to decline.
According to the central bank’s data, GDP growth may still be between 2.5 and 4.5 percent, but growth is expected to be in the upper half of this range. Vibrant domestic demand is what is offsetting the negative effects of the Russo-Ukrainian war.
Barnabás Virág said that the goal is to close the level between the base rate and the one-week deposit in the central bank. The MNB will assess the required rate increase in the following months on a monthly basis.
At the end of the press conference, György Matolcsy said: The new vision of Prime Minister Viktor Orbán, according to which we will catch up with the average level of development2 and living standards of the then European Union by 030. According to György Matolcsy, this is possible.
According to the president of the central bank, if we manage to fight inflation, succeed in the operation of restoring financial balances and start a real restoration of the balance of payments, then there is a chance to win the decade.
The risks of this decade of war are greater than they were before. Whoever wins at the beginning can also win at the end. He who is not brave or determined enough to find the thin path of balance and growth loses – said the President, who is proposing to the government to work with the business sector and families to find the bold, unorthodox but good tools to achieve the 2030 national vision.