Hungary’s 'catastrophic' minister

"Matolcsy made his comments in his weekly column in Heti Valasz newspaper. As Timothy Ash of Standard Bank pointed out in an email to clients, Matolcsy has made a string of public comments on the role of the central bank, presumably in an attempt to bolster his bid for the governorship: 'These comments on the HUF would be viewed by many as a green light from the govt for the currency to go weaker. They seem somewhat strange given the backdrop of a weight still of FX liabilities held by households and banks.'

Indeed. At the end of September, foreign currency-denominated debts held by households (often in the form of Swiss franc mortgages) were equal to 18 per cent of GDP; non-financial corporates had FX debt of about 40 per cent of GDP; at Hungarian banks (excluding the central bank) the figure was about 34 per cent of GDP; and the government’s own FX debt was equal to about 36 per cent of GDP. (Thanks to William Jackson at Capital Economics for those figures.)

So an awful lot of Hungarians in many walks of life have a direct interest in the exchange rate. Indeed, Prime Minister Viktor Orbán, during his previous term in office between 1998 and 2002, hailed his administration’s success in delivering a stronger forint because it 'made all Hungarians richer'.

As Jackson points out, you don’t always get the clearest of signals from the Hungarian leadership. And Matolcsy is making a point that is at least partially valid: that the central bank (which he views as a strategic partner of government) should ease off its monetary policy to help drive growth. That works in a lot of places. But not many places are as sensitive to the exchange rate as Hungary."