Are you sure?

Central bank notes negative effects of latest fiscal adjustments on growth

The National Bank of Hungary's press department noted the negative effects on economic growth that a new round of fiscal adjustments would have, responding to a query by MTI.

National Economy Minister György Matolcsy announced an additional HUF 367 billion of fiscal adjustments on Wednesday that aim to end the European Union's Excessive Deficit Procedure against Hungary and ensure the country can avail of is full Cohesion Fund allocation. The measures include the reversal of an earlier decision to halve the bank levy and another to increase the scale of the planned financial transactions duty from 0.1% to 0.2%.

The MNB's press department noted that central bank governor András Simor, speaking at a conference on Tuesday, had pressed for an end to the "vicious cycle" of placing state burdens on banks, causing a further decline in lending activity and hurting growth as well as the country's fiscal position.

Banks do not reduce interest margins because of the burdens placed upon them by the state, Simor told the forum organised by Portfolio.hu. Because of this, the ratio of non-performing loans grows, which causes banks' ability to lend to deteriorate further, thus negatively affecting economic growth and the budget, he explained.

The MNB press department also said the central bank's rate-setting Monetary Council had earlier stressed that the bank levy reduced the domestic banking system's ability to draw in capital and to lend, which could hold back short- and long-term growth. The levy could weaken the banking sector's ability to attract external resources as well as the stability of the Hungarian economy, the rate-setters said.

The MNB press department said the central bank would deal in detail with the new measures announced on Wednesday in its Stability Report, to be published on November 5, and in its next quarterly Inflation Report, due out in December.