The longer Hungary waits to start changes, the greater the “bloodletting” society will have to suffer and the longer the instability will be, National Bank of Hungary governor Andras Simor said on Tuesday.
It is obvious that Hungary cannot get out of its present situation in just one year, Simor told commercial television station TV2 . The country needs a 4- to 5-year programme, with a “significant package of measures for this year”.
Speaking about the forint’s exchange rate, Simor said more than 200 million euro flows were issued at a the NBH’s three- and six-month HUF/EUR swap auction on Monday. “We are also moving on the market, we have bought forints for euros,” he said, though he declined to reveal when and how much the bank had bought. “We have not commented on that and will not comment on it in the future either.”
Simor said the forint’s exchange rate was being determined by the attributes of the Hungarian economy, adding that the government had a bigger role to play in changing the rate than any intervention by the central bank.
Hungary has around 25 billion euros of foreign reserves, but the country also has a high level of foreign debt, Simor said. Under the current circumstances, these foreign reserves are sufficient according to all international indicators, but it must also be seen that there cannot be limitless spending from this amount to protect the forint, he added. If the foreign reserves were to fall drastically, it would negatively affect the forint’s rate, he explained.
Hungary’s banks and other market participants have acclimated to the new system and are capable of functioning normally and efficiently with a forint that is weaker than it was earlier, Simor said.