Central bank governor blasts Hungary's "erratic and zig-zagging economic policy"

By bne IntelliNews December 9, 2011

bne -

The markets have been blasting Hungary's unorthodox economic policy by both word and deed in recent months. Now they've been joined by the governor of the country's central bank - a move that threatens to bring simmering tensions between the Magyar Nemzeti Bank (MNB, or Central Bank of Hungary) chief and the government back to the surface.

As talks between the government and the country's banks about reducing the country's foreign currency loans continue, Andras Simor - a regular foe of the ruling Fidesz party - has labelled the government's controversial early forex mortgage repayment scheme "extremely detrimental," and critisised the government's "erratic and zig-zagging economic policy" for stymying bank lending.

Although he called the talks, which follow the submission of proposals by the banks on how to help reduce forex debt, "very promising," Simor also told a conference on December 8 that the country should develop a liquid-asset requirement for banks and expand mortgage-based financing to extend the maturity of bank funding. "Any solution to this problem should aim to help the most needy, should share the burden among banks, borrowers and the state, and should be gradual," Simor said, reported Bloomberg.

Hungarian banks have complained bitterly over legislation introduced in September that forces them to shoulder massive costs on an early mortgage repayment scheme. The banks presented to the government in November a set of proposals to help forex borrowers, but have also continued to threaten legal challenges.

The government calls the country's forex debt the country's largest macroeconomic risk, and has threatened further measures. It has also complained that the recent battering of the forint and rise in the country's borrowing costs after it was downgraded to junk status by Moody's Investors Service is unjustified vengeance from the financial markets. Investors, however, insist that the government's actions make Hungary a riskier prospect, both due to erratic policy and the potential dampening effect it is likely to have on growth. Simor's words - which clearly back the market's stance - threaten to excerbate the tension between the government and the central banker.

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