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UPDATE 1-Hungary cbank rate setters should resign-Matolcsy

Published 05/11/2010, 02:49 AM
Updated 05/11/2010, 02:52 AM

* Hungary cbank has committed serious mistakes-Matolcsy

* Economy could grow 0.5-1 pct in 2010 if tax cuts launched

* New govt could agree on 5-6 pct/GDP deficit with lenders

(Adds more comments, detail, background)

BUDAPEST, May 11 (Reuters) - Hungary's central bank has committed serious policy mistakes as it has focused only on inflation and the members of the Monetary Council should resign, incoming Economy Minister Gyorgy Matolcsy was quoted on Tuesday as saying.

The centre-right Fidesz party which won elections last month and will form Hungary's next government has stepped up criticism of the bank and its governor since the elections, but it was the first time a top Fidesz policy maker called on the Monetary Council to resign.

Matolcsy told daily Nepszabadsag the bank has made mistakes since the summer of 2003 as it has allowed foreign currency borrowing to spread and concentrated only on curbing inflation.

"The balance between central bank objectives has been upset since October 2008. They only focused on fighting inflation and they lost the battle," Matolcsy said in an interview.

"The National Bank of Hungary has committed serious professional mistakes and it seems it has not learned from these."

When asked if members of the Monetary Council should draw the consequences and should resign, Matolcsy said:

"Yes, that's what I think."

Matolcsy, who will head a new economic policy power centre in the new government, also said Hungary's economy could grow this year by 0.5-1 percent if the government starts implementing its three-year tax cut programme from July and cuts bureaucracy.

Analysts expect the economy to stagnate this year .

Matolcsy said Fidesz wanted to shift the tax burden from taxing incomes to consumption and would not reduce the top value added tax rate from 25 percent before 2013.

"In the three-year tax programme we must achieve that the focus should shift from incomes to consumption," he said.

"It is for certain that until the European Union and the Hungarian economy starts growing in a palpable way -- which we expect in 2013 -- we cannot reduce the top 25 percent rate."

Matolcsy reiterated that this year's budget deficit would probably exceed the target of 3.8 percent of GDP.

He said he expected the new government to be able to agree with the International Monetary Fund and the EU on a budget deficit of 5 to 6 percent of gross domestic product for this year. (Reporting by Krisztina Than; Editing by Mike Peacock)

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