Scrapping the forint’s intervention band has made it possible for Hungary to converge to average EU price levels through the revaluation of the forint rather, than through higher inflation, National Bank of Hungary (MNB) President András Simor said at a conference in Budapest on Monday.
The currencies of Poland, the Czech Republic and Slovakia have strengthened 20%, 30% and 35%, respectively, against the euro since 2001-2002, while Hungary’s convergence has occurred mainly through a higher rate of inflation during the period, Simor noted. Hungary’s low employment rate is one of the main problems the country is encountering as part of its process of EU convergence, Simor said. Hungary has also failed to liberalize product markets, several of which continue to operate under monopolies, according to the central-bank president.
The Czech Republic, Slovakia and Poland, Hungary’s competitors, have taken major steps forward in this area, Simor noted. Tackling these problems is not a precondition for introduction of the euro, though must be done in order to improve Hungary’s competitiveness, Simor said.
Hungary must continue fiscal consolidation and the reduction of its general government deficit, the central-bank president added. Simor deemed the fiscal consolidation of the past two years to have been successful, but added that this process must also include cuts in budget expenditures. Social expenditures should be restructured and significantly reduced, Simor said. Fiscal policy should remain disciplined and the government must create competition on markets on which it is currently lacking, the MNB President said. (MTI-Econews)