Hungary’s Kurali, OTP Bank CEO Back Path to Euro Accession

Hungarian central bank Deputy Governor Zoltan Kurali said the government should follow through on the plan for euro adoption as it would help elevate the country’s status in financial markets.

Prime Minister Peter Magyar’s administration has said it wants to meet criteria for the accession by 2030, a tall order given Hungary’s high budget deficit and public debt. The government is set to detail its euro ambitions when it presents long-term fiscal plans next month.

“It’s imperative that we stay on this journey,” Kurali told a Bloomberg event in Budapest on Tuesday.

Hungary’s euro path hinges on the credibility of next year’s fiscal plan and longer-term projections, OTP Bank Nyrt. Chief Executive Officer Peter Csanyi told the same event.

“Investors eventually need to believe in it and it has to be credible,” Csanyi said. “It’s very important to get the conditions right for the time of the adoption.”

Financial markets in Hungary have rallied in anticipation of the government’s plan to adopt the euro, which would mark a clean break from years of anti-European Union course under the previous prime minister, Viktor Orban.

Read More: Hungary’s Credible Euro Path May Lead to Credit Upgrades: Kurali

The effects of euro accession for lenders may show up years before the actual introduction of the common currency, Csanyi added, citing OTP’s experiences in countries like Bulgaria and Croatia.

That includes tighter margins but greater loan volumes due to more affordable interest rates and rising investments, he said. OTP is currently awaiting regulatory approval to acquire Baltic lender Luminor Bank AS, which would take the lender’s euro area credit exposure to over 50%.

Read More: OTP Bank Looks at Exiting Russia With Baltic Deal Under Scrutiny

The central bank’s Kurali has been a key proponent of Hungary’s euro adoption, arguing that the plan to abandon the forint may help Hungary improve its credit rating and eventually escape its emerging-market status. OTP’s Csanyi also added his voice to the euro debate, well before the change in government.

The central bank paused its rate-cutting cycle this month after the global environment turned less constructive due to the rise in yields and energy prices.

Policymakers are awaiting the details of the government’s longer-term fiscal plans, according to Kurali. That announcement will need to demonstrate how Hungary advances toward the common currency area in the coming years, he said.