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Hungary govt looks to central bank to spur growth

Hungary’s government is asking the central bank to mull ways it can use monetary policy to support economic growth, National Economy Minister Gyorgy Matolcsy said on Wednesday.

Mr Matolcsy said he was asking National Bank of Hungary Andras Simor to re-launch a mortgage bond purchase programme or start corporate bond purchases to spur growth. Mr Matolcsy added that he had been regularly consulting with Mr Simor on instruments of monetary policy that could be used to boost growth, such as ones used by the ECB, the Fed and the BoE.

The central bank could purchase the corporate bonds with its forint resources as forex reserves cannot be used for growth, he said.

The MNB could also rethink and restart a mortgage bond purchase programme, Mr Matolcsy said, noting that the programme had had limited success earlier.

The MNB has purchased HUF 7.3bn in mortgage bonds on the primary market and HUF 27.4bn in mortgage bonds on the secondary market under a HUF 100bn mortgage bond programme it operated to prop up market liquidity and forint lending between February and December last year.

Speaking about fiscal matters, Mr Matolcsy said Hungary’s government could make small corrections next week to the expenditure and revenue sides of the 2012 budget, but would continue to target a 2.5%-of-GDP deficit. The changes could be necessary because the government now puts GDP growth between 0.5% and 1% next year, under the earlier 1.5% projection on which the budget bill is based, he added.

Mr Matolcsy said the government aimed to bring state debt as a percentage of GDP to between 65% and 70% by 2015 and close to 50% around 2020. The scale of state debt must be reduced as long as GDP grows, he added.

Hungary’s updated Convergence Programme targets to bring down state debt from 82% of GDP at the end of 2010 to 64.1% of GDP in 2015.

A planned agreement with the IMF is not intended to support growth, but to provide a safety net so Hungary can continue to finance itself from the markets, he said.

Mr Matolcsy said the government was striving to reach a framework agreement with the Hungarian Banking Association in which the MNB participates as an independent institution and can agree with banks on expanding liquidity, among other things.