In praise of Matolcsy’s central bank policies

Hungarian tax payers have walked away with huge gains thanks to National Bank President György Matolcsy’s bold policies, according to an article on a right-wing news site.

While many in the Hungarian press rant and rave against the Hungarian National Bank (MNB) President because of his controversial use of central bank funds (see BudaPost April 29th, 2016 and May 6th, 2016 ), Gergely Szabó praises György Matolcsy’s policies in an extensive article on Mandiner. Unlike his predecessors, Gergely suggests, Matolcsy understood that the MNB could lower its base rate without triggering higher inflation, and was bold enough to cut rates aggressively. This has had hugely beneficial effects on MNB’s reserves, the budget and on the Hungarian economy.

At the same time, the author notes, former central bankers preferred a large FX reserve, parked in foreign accounts, which paid very low interest. The difference between the interest paid and received generated huge losses every year for the MNB – and the tax payers. Matolcsy’s policies have improved the MNB’s balance sheet by 1000 billion forints so far, Gergely maintains. And since base rate cuts have reduced the interest expenditure on sovereign debt, this had saved an additional 1000 billion forints for the budget by 2016, and improves its balance every year, the author suggests. In addition, the expenditure of households and companies on interest has dropped too. The author also claims that with its ‘perfectly timed conversion of FX based mortgages into forint credits,’ the MNB reduced the losses of households by 350 billion forints.

Thus, Gergely Szabó argues, even though spending 5 billion forints in a now much-criticised MNB program (see BudaPost April 26th, 2016) has proved to be controversial, this sum is insignificant compared to the huge gains the central bank has produced for the Hungarian taxpayer.

Tags: Matolcsy, MNB