Matolcsy: Hungary can expect rating upgrade

EU

National Bank of Hungary (MNB) governor György Matolcsy said yesterday he expects Hungary to receive an upgrade of its sovereign rating this year, due to the predictable and stable path the country is on as a result of the stabilisation and monetary policy that followed a successful change in economic policy after 2010.

Although Matolcsy acknowledged the good economic fundamentals of the counrtry, he noted that it is still in a vulnerable position, even if its “vulnerability has declined significantly in the past years”. Hungary's vulnerability lies in part with its high level of state debt, but it is also impated by the EU's vulnerability, according to the governor. He added that the country’s risk further increased by the Russian-Ukrainian conflict because of its geographic proximity as well as the effects of the conflict between Russia and the West on the EU economy and growth prospects.

"Beside this, everybody agrees that we are on the right path," he said. Matolcsy said he believes Hungary could profit more than most countries from falling oil prices, but he warned that they could also bring deflation to a number of EU member states and perhaps to the whole union. Neither the EU nor the European Central Bank is prepared for a prolonged period of deflation, which would prompt households to postpone purchases and stymie economic growth, he said, noting the example of Japan.

Matolcsy said the turnaround in monetary policy had accelerated in the spring of 2013, bringing predictability and stability to the Hungarian economy. "Today, everybody believes that the MNB, in cooperation with the government, operating in support of the government's economic policy, prevented a collapse of domestic lending and is a predictable, credible partner of high-profile central banks as well as the ECB," the governor concluded.

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