Potential Increase in Budget Deficit#
Hungary's primary budget deficit may widen this year, moving from 0.9% of the country's economic output in 2025. This warning comes from Mihaly Varga, the governor of Hungary's central bank, who stressed the importance of managing the deficit effectively.
Central Bank's Interest Rate Strategy#
During a recent business conference, Varga highlighted that the central bank plans to maintain a positive real interest rate. A real interest rate is the nominal interest rate adjusted for inflation, which helps keep inflation risks in check. Last month, the central bank decided to keep its base interest rate steady at 6.25%.
Economic Fundamentals and Inflation Risks#
Varga pointed out that Hungary's economic fundamentals are stronger now compared to early 2022. However, he acknowledged that ongoing conflicts, such as the situation in Iran, pose inflation risks. On a positive note, a stronger Hungarian forint (the national currency) and a cap on fuel prices are helping to control price increases.
Future Economic Policies#
The governor also mentioned that the economic policies of the incoming government will play a crucial role in shaping the inflation outlook. He believes that household consumption will continue to be a significant driver of economic growth, bolstered by supportive government measures.