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Cbank: Rate hike does not necessarily entail a rise in budget expenses

Monday’s hike to the central-bank base-rate does not necessarily entail a rise in central-budget expenditures, National Bank of Hungary (MNB) President András Simor said on a television program on Thursday morning.

The MNB president noted that 30% of Hungary’s government debt is denominated in foreign currency and that the recent 5% strengthening of the forint has cut state debt by around Ft 250 billion. Simor also noted that the tightening may not generate an increase in expenditures over the longer term due to the fact that the central bank fixes the short-term rate, while the average term of the central-budget debt is three years.

The MNB has raised its key rate by a combined 100 basis points since March 25, while the yield of short-term discount T-bills has risen by only 30-50bp and longer-term yields have not risen at all since that date, Simon cited as illustrations. Government-security yields, in contrast, rose 50-100bp in February-March, during which time the central bank did not change its base rate. (MTI-Econews)