Fiscal and monetary policy will have to be coordinated to bring down inflation, and the government should focus on the spending side to restore balance to the budget, Barnabás Virág, deputy governor of Hungary’s central bank (NBH), told a conference.
Meanwhile, further hikes will have to be made to bring about positive real interest rates, he told the Lending 2022 – Portfolio conference. Virág said inflation would peak in the third quarter, averaging an annual 9-10%. Monetary policy must concentrate on breaking second-round inflationary effects, he added, so the strict tightening cycle will continue in the coming period. He noted that high inflation was a global problem, and it could complicate Hungarian economic policymaking unless it is resolved. The central banker noted the high budget deficit and public debt levels, intensifying competition for skilled labour putting upward pressure on wages, as well as lax market competition in several segments of the economy. He said Hungary would not be able to avoid double-digit inflation in the coming months as was already the case in the region. The National Bank of Hungary has raised the base rate by 480 basis points since last June, to 5.4%.