What are György Matolcsy and his colleagues doing about the government’s electoral grip?

Károly Csabai, the editor in charge of and Privátbanká, gave his opinion on economic news on Trend FM’s Morning Monitor.

For some time now, the relationship between the government and the MNB can be described as someone going forward through the trenches, not caring what he leaves behind, while the person coming after him is trying to restore the vegetation with all his might.

Since spring, the central bank, led by György Matolcsy, has been sending out warnings that inflation is accelerating, and to curb it, the government would do better to cut back on spending. In line with its mandate under the central bank law, namely to create and maintain price stability, the MNB started raising interest rates at the end of June to dampen the annual money deterioration, which peaked in the sixth month of the year at 5.3 percent in 2021.
However, the government seems to be unconcerned about inflationary risks, when asked about this, its representatives stress that this is the MNB’s job. Viktor Orbán and his party have already sponged off the central bank by making the clone of the NHP Hajrá programme, the Kavos loans, which were phased out at the end of June, available the very next day, on terms even more favourable than those of the central bank.

But in fact, they added fuel to the fire last week by announcing measures that could give individuals access to a total of more than a thousand billion forints in spendable money. Before spring 2022. The timing is obvious – that is when the next general election will take place, and it now seems that, unlike the previous two – in 2014 and 2018 – this time it will be harder for the governing parties to get their four-year mandate extended.
Of course, it remains to be seen how the extra money will be spent by the beneficiaries – above all pensioners and families – but there is a good chance that they will not put it aside but bring forward their purchases. And they are likely to do so precisely because inflation of around 5 per cent will make life even more expensive than it is now, possibly even higher, and thus contribute to further inflation as a kind of self-exacerbating process.

The question is what the MNB can do in this situation, whether the measures already taken and those already envisaged will be sufficient. In any case, the central bank is offering, precisely today, an opportunity to spend extra money that is not necessarily inflationary.
Green loans for the purchase and construction of new energy-efficient homes at a maximum interest rate of 2.5 per cent per annum offer the prospect of a more sustainable future in the longer term, with more cost-effective energy bills. The only question is whether there will be a supply in the domestic housing market for which these green home loans can be used.

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