Andras Simor © MTI

At the MGYOSZ event, Andras Simor said the budget deficit could be lower than the 3.4 per cent the government was forecasting for this year if the government refrained from overspending in the final weeks - the deficit could fall below 3 per cent, he said.

He added that the government could have placed the burden of restructuring elsewhere: it was a political decision to make business pay the price by raising taxes and cutting back on investment rather than cutting away at the social system. This had made the economy grow more slowly, which had led to increasing indebtedness as a result of the low level of saving in the country. This was why the crisis was affecting Hungary more seriously than other, similarly indebted countries.

He also said that the central bank's approach to the crisis was now starting to bear fruit. The government bond and foreign currency swap markets were beginning to stabilise. This, he said, had justified the 3 per cent rate hike the bank had pushed through in October.

Simor was unhappy with the term "bank rescue package", but thought that something had had to be done, since other countries had taken similar decisions. He said Hungary's banks had no need of a rescue package, since they had adequate capitalisation. A package was nonetheless necessary to make sure Hungary's financial institutions were not placed at a disadvantage compared to banks in countries with rescue packages in place. The package should not be about interfering in banks' decision-taking process, he said, but should provide the state with a right of veto in extreme circumstances.

Hungary's E20bn IMF-led loan package was only enough to stabilise and restore confidence in Hungary in the short-term. In the longer-term, he said, the economy would fall behind without further reforms. The crisis provided an opportunity for Hungarians to look at their mistakes and solve existing long-term problems. He emphasised that financial help was necessary but not sufficient - without funding, banks would not be able to make loans - they needed to be sure that economic growth would return.

He expected interest rates to be cut at the rate that the markets would bear, but said the bank wanted to bring rates down, since inflation did not justify keeping interest rates at such a high level.

The most recent 50 basis point rate cute had been a risk that had paid off. Simor said that an over-strong forint would have caused enormous damage to the economy, both among the population and in the corporate sector.

He added: "We will have other ideas for pumping reserves and liquidity into the banking sector." He said the country was in a transitional phase, and that in the long run only a growth in saving could provide credit security. He added that the central bank had no influence over how banks lent to companies.

MTI/hvg.hu