A clash between Hungary's economy minister and the central bank governor reignited on Tuesday after a brief ceasefire, with the minister accusing the bank of being uncooperative regarding economic strategy.

Hungary's central bank, which has reduced borrowing costs by 1,025 basis points to 7.75% in the past year, has encountered significant pressure from Prime Minister Viktor Orban's government to implement more aggressive interest rate cuts to support the economic recovery.

Additionally, the government has introduced various policies, including limits on corporate and retail lending rates, and proposed several measures. However, the central bank, led by Governor Gyorgy Matolcsy, a former ally of Orban, has argued that these policies would undermine its independence.

Economy Minister Marton Nagy, a former deputy of Matolcsy, reignited the conflict after a brief truce that began in early April, Reuters reports.

Nagy accused the bank of lacking the ability to cooperate with the government, despite efforts by Orban's cabinet to explore avenues of collaboration, Nagy told the news website index.hu, in response to central bank criticism of his recent economic reform suggestions.

“This shows that the central bank is unable to cooperate, our attempts to do so were in vain,” Nagy stated.

Matolcsy, whose term ends next March, has become increasingly critical of Orban's policy direction since the 2022 election, with both sides exchanging blame for last year's spike in Hungarian inflation, which reached the highest level in the European Union.

Furthermore, the Monetary Council of the National Bank (MNB) cut the base rate by 50 basis points to 7.25% at its monthly rate-setting meeting on Tuesday, in accordance with predictions and consistent with the rate cut implemented the month before.

The MNB initiated its easing cycle one year ago, starting from 18%, but it is now nearing an end.

Inflation is projected to accelerate in the upcoming months following a significant disinflationary phase, dropping from 25.7% in January 2023 to 3.7% in April 2023.

The interest rate corridor saw no changes, with the overnight deposit rate reduced to 6.25% and the overnight collateralised loan rate to 8.25%, both experiencing a 50-basis point cut.

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