Hungary Central Bank Statement

Author: | Published: 19 Oct 2018
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A decade has passed since the recent global financial crisis. This period saw fast-growing emerging economies become the engine of global growth. In addition to domestic factors, both the cyclical recovery in advanced economies and accommodative global monetary policy conditions contributed to their dynamic real economic expansion.

Now, it seems that the winds are turning and it may no longer be possible to sail in calm waters in the years ahead. As large central banks are gradually changing the course of their monetary policy stance, investor sentiment and financial markets are becoming more volatile. Further challenges are also beginning to emerge as growth in many advanced economies is reaching its structural limits and geopolitical risks are increasing.

Sustainable convergence can only be ensured through the maintenance of financial stability. That is the basis of policy. Long-term growth and financial stability absolutely complement each other. From a macro perspective, resilient and fundamentally strong economic growth can be only achieved with a disciplined fiscal policy, strong prudential policy and innovative monetary policy. In an emerging country, the most important ingredients of such a forward-looking and stability-oriented policy should include a stable external financing position, disciplined fiscal policy, a low share of foreign currency denomination and a healthy banking system. These also provide the necessary defensive lines and the fundamentals of resilient growth, boosted permanently by competitiveness. The latest trends in technology, digitalisation and artificial intelligence provide new opportunities for emerging countries to find their new convergence engines.

Hungarian economic policy has drawn the lessons from the recent global financial crisis and has focused on building a more resilient and fundamentally stronger economy since 2010. Hungary achieved a turnaround in many fields. Using conventional and unconventional measures, the fiscal deficit has been reduced in a sustainable way, and the government debt-to-GDP ratio is declining. With the disappearance of large deficits, the current account is in a steady surplus and Hungary's external debt has fallen significantly.

Fiscal and structural policies have been supported by innovative, targeted monetary policy measures. The Magyar Nemzeti Bank (MNB) eased monetary conditions in gradual steps to achieve its inflation target in a sustainable manner. The conversion of foreign currency-denominated household loans into Hungarian forints led to a reduction in vulnerability. The MNB’s self-financing programme mitigated the exchange rate and rollover risks of government debt. Comprehensive policy measures contributed to a sustained reduction in vulnerability, which is quite important, especially in today’s turbulent times.

It is crucial to strike a fine balance between policies to foster economic growth and financial stability. For central banks, promoting price stability with a resilient financial system and sufficient flexibility is of key importance. Furthermore, policymakers must place great emphasis on improving competitiveness using conventional and non-conventional steps in order to achieve stable and sustainable economic convergence. It is certain that more turbulent times lie ahead, and it is worth preparing our economies well in advance.