Economy
ANALYST VIEW - Untimely meddling with central bank independence in Hungary - Nordea
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According to ECB’s legal opinion published on website today:
"The increase in the number of Monetary Council members, together with the possibility of increasing the number of deputy governors--without due justification for the need to amend the [central bank's] institutional framework--gives rise to concerns whether this could be used to influence the decision-making process to the detriment of central bank independence".
“Instead of solving the current issues Hungary is getting even more into trouble - if history is anything to go by, monetary policy body losing independence ends up with havoc," commented Aurelija Augulyte, analyst at Nordea, Copenhagen.
“If the government gets the right to assign the deputy governors then it means the Hungarian central bank’s decisions will eventually become influenced by the fiscal authorities, which may lead to pro-cyclical policies. This risks destabilizing both the economy and the financial markets. In the worst case it risks ending up in á la Argentina scenario, where central bank effectively becomes a public sector funder."
The analyst noted that the first signs of the “potential misbehaviour" are already visible - Mihály Varga, PM Orbán’s chief of staff, commented on 13 Dec that central bank and government need to make “gestures" and cooperate on economic policy to boost growth.Also, the cabinet has just cut its growth outlook for 2012, expecting GDP to grow by no more than 0.5%. Earlier today Varga commented that the Hungarian currency “should rebound", implying that monetary policy easing is not in sight yet. “But if government has their way we may get some serious easing next year."“Apparently the Hungarian central bank is not satisfied - Governor András Simor commented today saying that the bill hurts the central bank independence and hurts the professional credibility."
Hungary is in talks with IMF, but this bill proposal “just doesn’t help the process in any way."
Parliament is scheduled to vote on the proposal tomorrow (16 Dec).
“The bill undermining Simor’s power is worsening the credibility among investors. The situation increases the risks for HUF and Hungarian assets for now."
"The increase in the number of Monetary Council members, together with the possibility of increasing the number of deputy governors--without due justification for the need to amend the [central bank's] institutional framework--gives rise to concerns whether this could be used to influence the decision-making process to the detriment of central bank independence".
“Instead of solving the current issues Hungary is getting even more into trouble - if history is anything to go by, monetary policy body losing independence ends up with havoc," commented Aurelija Augulyte, analyst at Nordea, Copenhagen.
“If the government gets the right to assign the deputy governors then it means the Hungarian central bank’s decisions will eventually become influenced by the fiscal authorities, which may lead to pro-cyclical policies. This risks destabilizing both the economy and the financial markets. In the worst case it risks ending up in á la Argentina scenario, where central bank effectively becomes a public sector funder."
The analyst noted that the first signs of the “potential misbehaviour" are already visible - Mihály Varga, PM Orbán’s chief of staff, commented on 13 Dec that central bank and government need to make “gestures" and cooperate on economic policy to boost growth.Also, the cabinet has just cut its growth outlook for 2012, expecting GDP to grow by no more than 0.5%. Earlier today Varga commented that the Hungarian currency “should rebound", implying that monetary policy easing is not in sight yet. “But if government has their way we may get some serious easing next year."“Apparently the Hungarian central bank is not satisfied - Governor András Simor commented today saying that the bill hurts the central bank independence and hurts the professional credibility."
Hungary is in talks with IMF, but this bill proposal “just doesn’t help the process in any way."
Parliament is scheduled to vote on the proposal tomorrow (16 Dec).
“The bill undermining Simor’s power is worsening the credibility among investors. The situation increases the risks for HUF and Hungarian assets for now."
