Budgetary Risks of Monetary Policy with Special Regard to the Debt Rule

Abstract

Within its scope of activities the State Audit Office carries out a systematic analysis of factors that pose a risk to meeting the public debt rule criteria. The present article is based on the SAO study, conducted as part of the above-mentioned activities with the aim of exploring the budgetary risks of the monetary policy. The starting point of our study is the fact that the loss or negative reserves of the National Bank of Hungary must be replenished from the central budget. We demonstrate that the result of the central bank is mostly influenced by monetary policy instruments and show that the related interest expenditure has increased considerably since 2009. Furthermore, we conclude that accumulating foreign currency reserves also poses a significant risk. By analysing Hungarian and international data, we point out potential solutions for mitigating these risks. We go on to argue that budgetary payment obligations may also result from positive economic processes; therefore it would be advisable to change the calculation method of the debt rule in order to better manage the budgetary risks of the monetary policy.