The Hungarian central bank’s interest rate policy “seriously damages” the economy, Marton Nagy, the economic development minister, told business website vg.hu in an interview published on Friday.
Hungary’s government has been putting pressure on the central bank to lower interest rates as the country’s inflation rate – the highest in the European Union – hits consumption and looks on track to push the economy into a recession in 2023.
As inflation has eased from double-digit levels, some central banks in central Europe have started lowering interest rates, led by Hungary and Poland, which are still expected to run inflation rates well above their policy targets next year.
Hungary’s inflation peaked at 25% in the first quarter and is expected to ease to around 7% in annual terms by December.
But Nagy, a former central banker who has repeatedly criticised the National Bank of Hungary this year, said the bank was behind the curve with its rate cuts.
“There is an obstacle to restoring economic growth and that is rising positive interest rates due to the central bank’s benchmark rate, which exceeds the rate of inflation,” Nagy said.
“Unfortunately, this curbs household consumption and investments by businesses, and this seriously damages the performance of the economy.”
The central bank cut its base rate HUINT=ECI by a larger-than-expected 75 basis points (bps) last month, extending an easing campaign launched in May that has seen rates fall by a combined 575 bps to 12.25% – still the EU’s highest benchmark.
The bank holds its policy meeting next Tuesday, and Deputy Governor Barnabas Virag said on Thursday that monetary easing could continue with another 75 bp cut in its base rate next week.
Source : Nasdaq