Gábor Futó: Hungary is not Turkey, no matter how much it hurts, we need high interest rates!
In this world economic situation, in my opinion, there is no other way for Hungary than the traditional monetary policy, which fights to suppress inflation in a way that is credible and transparent for international market players as well.
As painful as it is for all of us right now, we need high interest rates now.
As in 2008-2009, the market now punishes any monetary or fiscal policy mistake immediately and mercilessly, while investors run away from it. The market does not offer opportunities for u-orthodox experiments, we have to follow the textbook path. This is true even for countries with a huge credibility advantage over Hungary, such as the United Kingdom, where the latest fiscal policy experiment/error immediately generated a market crash in the bond and foreign exchange markets. Mistakes are hard to admit, but a good leader is able to change and fix what has been broken. For these reasons, I have a very positive assessment of the MNB’s decisions today, with which, if it continues consistently, it will hopefully be able to regain its credibility in the fight against inflation. Perhaps raising the base interest rate would be an even cleaner, clearer step, since the double interest problem was perceived and dealt with by the MNB just a few months ago.
Futureal Group, Co-Founder and Co-Owner
Gábor Futó, co-owner and co-founder of the Futureal group, together with his father, Dr. Péter Futó, created the company group, which has been one of the leaders in the Central European region for the past two decades
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Interest rates are very high, but inflation is even higher. Real interest rates are negative. Hungary’s balance of payments has been hit by high energy prices and may worsen if there is no EU agreement. In order to balance the foreign exchange market, we must either curb imports through a deep recession, or drastically increase net exports (or FDI), or use our foreign exchange reserves, or attract foreign currency financing (or combinations of these).
We want to avoid a deep recession, there are not enough reserves in exports, the level of foreign exchange reserves is low, i.e. there is only a small possibility of using them, and the latter requires credibility.
In order to gain credibility and retain EU resources, we must show that we are an important member of the EU, we must agree and answer the EU’s objections. In addition to this, for market credibility, we also need to demonstrate again and again that we can handle a crisis. In the latter, however, the government is experienced and can credibly build on its successes in the previous crisis.
I do not agree with MKIK’s reaction to the interest rate hike.
The lack of an interest rate hike would have turned us into Turkey, would have crashed the HUF,
it would have further increased inflation and necessitated even greater interest rate increases later in order to stop the price-wage devaluation spiral. In addition, it would have increased the risk of a mass exodus from the forint. Today, this risk is negligible, but the public’s trust must be maintained, and a sudden 8% devaluation will not help in this. The population must continue to believe in the HUF and enjoy the very high interest rates available on savings. High interest rates are necessary, there is another way, until there is an EU agreement and until it is seen that there is no nominal decrease in inflation, market calm returns and a significant amount of foreign currency financing is brought into the country. I’d rather have high interest rates today than a crash. Hungary is not Turkey!
The residential sector was protected by the interest rate cap.
Companies pay high interest rates, so their debt is inflated in real terms.
To encourage the banking system to take this into account and increase credit limits, i.e. to capitalize a part of the interest as much as possible. It might be worth thinking about this incentive.
The situation in our industry is not easy, real estate developments are the losers of the current crisis. The costs were drastically increased by supply chain disruptions, energy prices and high interest rates, so the amount of loans that could be taken out decreased due to the high interest rates, so the need for own power also increased. And the income side is uncertain.
Energy prices and the crisis unsettle commercial tenants,
covid and hybrid work reduced office demand, and covid and zoom reduced demand for hotels. In the housing market, due to the high interest rates, credible buyers fell out months ago, i.e. only cash buyers remained. The extension of the 5% VAT and the presence of cash buyers may still hold all the strength in the industry.
The positive news for customers is that as demand decreases, supply becomes more limited, and production costs rise drastically, so
price increases are almost certain,
housing investment protection against inflation. What other investment can protect our purchasing power today?