BUD`EST, Dec 21 (Reuters) – Hungary must avoid a recession next year and bring inflation down to single digits by the end of 2023, Prime Minister Viktor Orban said on Wednesday, adding that rising inflation is putting “enormous pressure” on the governor of the central bank.
Hungary’s nationalist leader faces his biggest challenge since taking office in 2010 as the economy slows, central bank interest rates are the highest in the European Union and annual inflation is expected to rise to 26%-27% in the coming months .
A soaring energy bill, which has skyrocketed to 17 billion euros ($18 billion) in 2022, is straining the country’s finances.
The Governor of the National Bank of Hungary, György Matolcsy, is an Orban ally, but earlier this month he criticized the government’s price caps on fuel, basic necessities and mortgages, saying they have increased inflationary pressures as the caps have prompted retailers to not to increase the prices of other products with limited price. Continue reading
Orban, who has since had to lift the fuel price cap due to fuel shortages, dismissed the criticism but said he “understood” the governor had a difficult task.
“A central bank governor has not been in a tight spot like this for a long time… since he is the central bank responsible for inflation, he must legally guarantee price stability. Of course, he can’t do it alone, but “it has the lion’s share,” Orban said at a press conference.
He said Matolcsy was “under tremendous pressure” with inflation above 20%.
“On the other hand, the tool chosen by the central bank to introduce high interest rates into the economy, which make it impossible for companies to borrow, also puts enormous pressure on the central bank from the corporate sector.”
“So I understand that the central bank governor is acting unorthodox in public.”
On Tuesday, the Hungarian National Bank left interest rates unchanged at 13% and raised its inflation forecast for 2023 to an average of 15% to 19.5%, pledging to maintain tight monetary conditions “for an extended period” to curb inflation.
Orban also said his government, which was re-elected for a fourth straight term in April 2022, will maintain an existing system of caps on household energy bills next year and will give women a tax break up to the age of 30 if they do so wish to have children.
Budapest will finalize deals with the European Union on funding in the coming days, he said, after reaching an agreement this month on releasing suspended funds if Hungary meets all the conditions agreed with Brussels in a rule of law dispute and the consequent curb related corruption on the use of EU funds.
Orban said Hungary is likely to have to pay €17-20 billion on its energy bill next year and the government will raise the necessary funding in the market.
When asked if funding from the International Monetary Fund (IMF) was an option, Orban said it was a “sovereignty issue” and Hungary would not go down that route.
Orban also reiterated his view that entering ERM-2 is not on the agenda as joining the eurozone would slow economic growth. Since Orban came to power in 2010, the forint has lost more than 50% of its value.
($1 = 0.9422 euros)
Reporting by Krisztina Than and Anita Komuves; Editing by Hugh Lawson
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