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Simor sees real economy returning to growth path in H2 2010

Hungary's real economy could return to the growth path in the second half of 2010, National Bank of Hungary (MNB) governor András Simor said.

Economies in the EU are expected to start expanding again in the second half of 2010, and this will be a decisive factor for Hungarian exports, Simor said. Weak domestic demand resulting from the country's indebtedness makes exports Hungary's only engine of growth, he added.

Simor acknowledged that a lower base rate would be necessary, but said the central bank also had to take into account financial stability and the financing of the country's debt. In a normal economy, the base rate would have been reduced by 2-4 percentage points in January, but Hungary could not follow such a path because of the country's level of debt, he added.

The rate cuts in the past months could happen because financial stability improved, and in the coming months the size and pace of possible rate reductions will depend on their being supported by financial stability, Simor said.

Answering a question, Simor said the central bank considers it important that the 2010 budget draft ensures the 3.8% -of-GDP deficit target is met.

Hungary's financial vulnerability has been reduced, and demand has grown among foreign investors for Hungarian debt, Simor said. For this reason, Hungary asked the IMF to extend the deadline of its stand-by arrangement, he said, without revealing any details.

“We have successfully closed the talks” with a delegation from the IMF, he said. (MTI – Econews)