Central Bank Governor Criticises Gov't Policy

Presenting the central bank's 2021 annual report, Matolcsy noted that the MNB's analyses had pointed, already early in 2021, to a return of "persistent and persistently high" inflation.

While the central bank adopted a policy pivot, "stepping on the brakes, as required, the government stepped on the gas", he added.

Matolcsy acknowledged the earlier successes of government policy, restoring fiscal balance, rolling out a new tax system, and setting a goal to create 1 million jobs in under 10 years, but said the government "lost its way" in 2021 and continued down the same path in 2022 as balances deteriorated.

He said Hungary faces two "great challenges": inflation and convergence. He added that while Hungary passed many countries on the path to convergence until 2019, it has been overtaken by a number of countries since then.

Matolcsy chided the government for failing to adopt reforms recommended by the central bank and said sustainable growth requires such reforms.

He brushed off speculation that he has "had a row with the prime minister" and is "offended and frustrated", but acknowledged a "disagreement in principle" between the government and the central bank.

MNB deputy governor Barnabas Virág said all elements of economic policy should be "subordinate" to bringing down inflation as high CPI hinders growth and the chance for economic convergence. He also pointed to the need for a disciplined and tight monetary policy.

He stressed the importance of taking measures against raising consumer prices faster than the increase in producer costs and said that practice added as much as three percentage points to headline inflation in the second half of 2022.

Virág said tight monetary policy would have a similar effect on home prices as on inflation and augured a halt to the fast home price increases seen in the past 4-6 years.