Civic Review· VOL 17. Special Issue, 2021, 104–123., DOI: 10.24307/psz.2021.0008
The independence of the Hungarian National Bank in setting monetary policy is guaranteed by law. However, the ultimate goal of monetary and fiscal policy, the promotion of sustainable growth of the national economy, is common. The creators of the two policies can be compared to climbers who climb to the same summit by different routes, bound together by a long safety rope. Such a rope is that when the central bank's reserves are exhausted, the budget is obliged to reimburse the central bank to cover its balance sheet deficit. This poses a direct budgetary risk. The supportive effect of monetary policy on fiscal policy can be seen, mainly indirectly, in the safer and cheaper financing of public debt. The opposite can be seen as an indirect budgetary risk. The paper reveals that between 2007 and 2012, the budgetary risks of monetary policy were amplified. However, from 2013 onwards, monetary measures have not created a direct budgetary risk, in fact the central bank paid dividends to the government. After 2013, monetary policy measures contributed to a significant reduction in the interest burden on public debt and an increase in the share of domestic sources in the financing of public debt. Monetary policy played an active role in mitigating the negative economic impact of the COVID pandemic. However, restoring fiscal balance, which was disrupted by the huge expenditure required to deal with the pandemic, is a different task for monetary and fiscal policy. It is important to keep monetary and fiscal policy together in this period.
Journal of Economic Literature (JEL) codes: E02, E59, H63
Keywords: monetary policy, fiscal policy, fiscal risk, foreign exchange reserves, public debt