Hungarian minister signals entry into ERM-2 and pledges to maintain deficit target

BUDAPEST, Oct 11 (Reuters) – Hungary’s finance minister on Tuesday raised the possibility of Budapest considering a scenario of entry into the ERM-2 mechanism once an agreement with Brussels on suspended European Union funds is reached. concluded.

It was the first time that Finance Minister Mihaly Varga spoke about entering ERM-2 as an option, at a time when the Hungarian government is facing inflation exceeding 20% ​​amid soaring oil prices. the energy and shift of the forint.

Varga also told a briefing that the government was ready to take further steps if necessary to meet the deficit target this year, adding that the economy would start to slow from the third quarter due to the slowdown in the economy. domestic demand.

“The country does not need the Euro at the moment because economic growth is outpacing the Eurozone…but the ERM-2 system is a possibility that all sane people thinking about fiscal or monetary policy should assess “Varga said in response to a question from Reuters.

“We are looking at the Croatian example,” Varga said, adding that the issue was not yet on the government’s agenda. He said thinking about entering ERM-2 could be on the table once a pending deal on EU funds is reached. Croatia will adopt the euro on January 1, 2023.

Hungary, where the central bank ended a major rate hike cycle in September to 13%, is struggling to rein in inflation, even with price caps in place on fuel, basic foodstuffs and average household energy bills.

Even though Varga has pledged to meet the budget deficit target, a growing current account deficit is keeping Hungary vulnerable amid a rally in the dollar that has hit emerging markets.

Varga said increasing tax revenue and freezing spending would help the government keep the 2022 budget deficit at 4.9% and the government would stick to its plan to narrow the gap to 3, 5% next year.

Varga said he expects economic growth to slow to around 1% next year from around 4% this year, with the slowdown starting in the third quarter as people start saving and consuming less in a context of soaring prices. (Reporting by Krisztina Than)

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