Hungary must avoid recession next year and curb inflation to single digits by the end of 2023, Prime Minister Viktor Orbán said on Wednesday, adding that surging inflation put “huge pressure” on the central bank’s governor.
Hungary’s nationalist leader is facing his biggest challenge since coming to power in 2010 as the economy slows, the central bank’s interest rates are at the highest in the European Union, and annual inflation is projected to pick up to 26%-27% in the coming months.
A surging energy bill, which jumped to €17 billion in 2022, is putting pressure on the country’s finances.
National Bank of Hungary Governor György Matolcsy is an ally of Orbán but earlier this month he criticised the government’s price caps imposed on fuels, basic foodstuffs and mortgages, saying they increased inflationary pressures as the limits had prompted retailers to raise the prices of other, non-capped-price products.
Orbán, who has since had to scrap the fuel price cap amid a shortage of fuel, rejected this criticism but said he “understood” the governor had a tough task.
“A central bank chief for a long time has not been in such a difficult situation as now…as it is the central bank in charge of inflation, it has to guarantee price stability under the law. Obviously it cannot do it alone but it has the lion’s share,” Orbán told a news conference.
He said Matolcsy was “under huge pressure” due to inflation running above 20%.
“On the other hand, the tool the central bank has chosen that it introduced high interest rates in the economy which makes borrowing impossible for businesses, also puts huge pressure on the central bank from the corporate sector.”
“So I understand the central bank governor behaves in an unorthodox manner in public.”
On Tuesday, the National Bank of Hungary left its base rate unchanged at 13% and raised its 2023 inflation forecast to an average at 15% to 19.5%, pledging to maintain tight monetary conditions “for a prolonged period” to curb inflation.
Orbán also said his government, which was re-elected for a fourth consecutive term in April 2022, would maintain an existing system of caps on household energy bills next year and would grant a tax break to women until the age of 30 if they choose to have children.
Budapest will finalise arrangements with the European Union on funding in the coming days, he said, after reaching an agreement this month on the release of suspended funds if Hungary meets all conditions agreed with Brussels amid a rule of law dispute and if it curbs corruption linked to the use of EU funds.
Orbán said Hungary will likely have to pay 17 to 20 billion euros for its energy bill next year and the government would raise the necessary financing in the market.
When asked if going to the International Monetary Fund (IMF) for financing was an option, Orbaá said this amounted to a “sovereignty issue” and Hungary would not go down this path.
Orbán also reiterated his view that entering the ERM-2 was not on the agenda, as joining the euro zone would slow economic growth. Since Orbán came to power in 2010, the forint has lost more than 50% of its value.
