31 January 2013

Interview with Hungarian Minister Matolcsy in The Wall Street Journal

The Hungarian Economy Minister said that the country's central bank could use more creative monetary measures to boost output without endangering financial stability or igniting inflation.

International investors have focused on the independence of Hungary's central bank as Prime Minister Viktor Orban prepares to name a new governor in coming weeks. Mr Matolcsy, a close ally of Mr Orban, is widely considered a candidate for the job, though he said it hasn't been offered to him. Mr Matolcsy said "there should be no shock therapy from monetary policy, no surprises". He said the central bank should "absolutely not" finance government deficits by printing money and should be very targeted in providing liquidity to commercial banks.

Still, Mr Matolcsy said he would like to see "a strategic partnership between the Hungarian government and the new leadership of the Hungarian central bank", adding that after a sharp decline in the state budget deficit in recent years, "what we badly need is a turning point regarding GDP growth".

There has been a tense policy battle between the National Bank of Hungary and the government since Mr Orban and Mr Matolcsy took office in 2010, with political leaders complaining the bank hasn't done enough to boost the economy, and bank officials criticising government moves as anti-growth and near-sighted.

Bank Governor Andras Simor also warned government-proposed legal changes threatened the institution's independence. The issue became a critical bone of contention between Budapest and the European Union. The EU, European Central Bank and International Monetary Fund all intervened to defend bank autonomy.

Mr Matolcsy said that the central bank "will be absolutely independent in the future", and that controlling inflation should remain its primary goal. But he said that the bank and government "must cooperate with each other" if the country is to pull itself out of recession.

Mr Matolcsy touted the government's success in shrinking the country's budget gap to below 3 per cent of gross domestic product, the level mandated by the European Union. He said the 2012 deficit would end up at about 2.7 per cent of GDP and this year's would be at a similar level.

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