"Viktor Orbán, President of Hungary's main opposition party Fidesz, has called on the central bank (NBH) to lower its key policy rate “immediately and radically". He said the base rate should be 6.00% instead of the current 11.50%.Orbán's remarks came after the party's key economist Mihály Varga said the same thing. Varga added that the government should also immediately abolish the tax on exchange rate and interest gains.
Orbán talked about the desireable benchmark interest rate level in the western town of Veszprém during his country tour. According to a report by vehir.hu, he said businesses currently need to pay 16-18-20% interest if they want to take out a loan, as the base rate stands at 11.50%. These, he said, they cannot afford therefore the base rate must be slashed to 6.00% so that the interest rate on loans would go down to 10-11%. Businesses need funds and if once they receive these they will not let their employees go, Orbán added.
In an interview with Gazdasági Rádió Varga also said on Tuesday that the central bank would need to cut its key policy rate at once and the government should scrap the tax on exchange rate and interest gains right now until the end of 2009.
The transitional cancelling of the above taxes would help foster growth, while the rate cut would be beneficial for businesses, he adde.
The soonest Hungary could join ERM-2, the anteroom for euro zone accession, is after 2010, Varga said, which means the soonest the country could adopt the single European currency is 2013.
Varga said in the current situation the cabinet should focus on three things: to reduce spending and taxes, support small and medium-sized enterprises and retain jobs.
He believes growth could be spurred from the side of household savings, as well if the government lifts the tax on exchange rate and interest gains until the end of next year.
Varga slammed the central bank's monetary policy and urged an immediate and drastic rate cut following an emergency 300-bp rate hike on 22 October. He said confidence has not been restored on the fixed-income market by the move, while the high base rate is an impediment to businesses.
While Socialist Prime Minister Ferenc Gyurcsány has recently proposed a 10% wage cut for the management of state companies, Varga said it should be 40-50% instead. He would also cap the number of Boards of Directors and Supervisory Boards members at three. These two measures, he said, would save the state budget up to HUF 1 billion annually."
Source: Portfolio Online Financial Journal
19.11.2008