BUDAPEST, Oct 26 (Reuters) - Drastic spending cuts, tax cuts for companies and speedy euro adoption are needed for Hungary to climb out of the global financial crisis and regain investor confidence, the head of the country’s biggest bank said.
Sandor Csanyi, chief executive of OTP Bank OTPB.BU, said that the forint’s sharp fall last week was fundamentally unjustified and the government and the central bank must protect the currency from further drops.
“Rapid euro adoption is the only way (to regain investor confidence),” Csanyi told state television MTV on Sunday. “I think Hungarian politicians need to come together and seek an exception from EU rules to adopt the currency as soon as possible.”
Hungary’s currency and stocks were one of the hardest hit in the 27 nation European Union over the past two weeks on concern about the country’s high debt level, heavy reliance on external financing and the proliferation of household foreign currency loans.
“The forint must be protected, if necessary, through further rate hikes or intervention,” said Csanyi, who is also one of Hungary’s richest men.
“I think that the forint’s realistic value is around 270 (but) for the next few months, I could even accept 280 as that would really help the economy and exporting firms,” Csanyi said.
The forint fell to an all time low of 285 versus the euro on Thursday before recovering to close the week around 280, nearly 11 percent weaker since the start of the year. The forint is among the worst performing emerging market currencies this year.
To protect the currency, the central bank last week raised its benchmark interest rate to 11.5 percent from 8.5 percent.
Analysts say Hungary will adopt the euro around 2014.
Csanyi added that to stabilise the forint and meet euro adoption criteria, the country needs to drastically reduce spending and cut taxes for corporations while reducing the budget deficit to a range of 0 to 1 percent of GDP from current plans for a 3.4 percent deficit this year.
Reporting by Balazs Koranyi; Editing by Phil Berlowitz