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Járai wants more spending cuts to prepare for euro

Hungarian central bank President Zsigmond Járai called on the government to further reduce state spending to prepare for euro adoption. „State expenditure is too high” and Hungary's euro-entry program „doesn't give a solution for this problem,” Járai said at a conference in Nyíregyháza, eastern Hungary, yesterday. The bank is concerned Hungary's 3% inflation rate in July, the highest this year, will rise further after tax increases make transport, utilities and medicine more expensive. The government, under pressure to slash its budget deficit, delayed plans to adopt the euro in 2010 and may make the switch as late as 2013, the government's convergence program indicates. Hungary's convergence plan „focuses too much on the revenue side,” the central bank said in a separate statement on its Web site, adding the „program still underestimates the inflationary impact of the measures.” The bank also said that without further austerity measures, the country's budget deficit may not be reduced after 2008. The central bank raised its benchmark interest rate, the European Union's highest, a third consecutive time to 7.25% on Aug. 28 to bring inflation down enough to adopt the euro. The inflation rate, forecast at 3.8% for this year, will reach 7% in 2007, the central bank said in its quarterly outlook. The bank expects the rate to fall to 4.2% by 2008. The government's revenue-raising plan will boost inflation by 1 percentage point in 2008 and 3 percentage points in 2007, the central bank said. The government wants to cut budget deficit by EU standards to 3.2% of gross domestic product by 2009 from a forecast 10.1% of GDP this year and plans to continue reducing the gap further through 2011. (Bloomberg)