Economy
Hungary c.bank chief Simor says rate hike criticism by gov't "unacceptable"
The Economy Ministry scathed the Monetary Council today for raising the base rate by 50 bps to 7.00%, saying that higher rates impede businesses and economic growth. This was not the first time it responded to rate moves, which Simor said is “unacceptable."
“It is unfortunate from several aspects. The person who wrote and approved this (statement) is not aware of the principal of central bank independence. A government criticising a central bank rate decision this way is incompatible with this principal. And this is not the first time either," Simor said. He also found it odd that the ministry released its statement one minute after the MPC announced its rate decision, while some news agencies were not that fast reporting the rate hike.
“It is unacceptable that government politicians swear on everything that they will respect the central bank’s independence and then they’re doing exactly the opposite," he added.
Simor noted that his view is shared by the ECB, the IMF and the European Commission. “Everybody’s saying that, but they apparently cannot hear it."
As for the co-operation government politicians have been urging the NBH to strengthen with the cabinet, Simor said this cannot be done alone.
“Our co-operation..., well it obviously takes two to tango. But let me stress that as long as the question of central bank independence can even arise as a question and we have to argue and debate about this all the time... I don’t understand how they can talk about co-operation."
Simor reminded that the NBH implemented a host of measures that were to boost liquidity (and subsequently lending) in the banking system, but he noted that the problem lies elsewhere.
“These programmes were to improve the liquidity situation of the banking system and make sure it (the shortage of liquidity) is not a problem for lending. But all our analyses show that the hurdles are not linked to liquidity rather than risk aversion," he said, adding that the bank tax, and the government’s latest measures to assist FX mortgage debtors (including delinquent borrowers) and the early repayment programme almost exhausted the banks’ capital buffer.
Simor also said the NBH could relaunch its mortgage bond programme, but only if the banks request it, because there was hardly any demand for it during the one year this programme ran.
Responding to the Economy Ministry’s proposal to adopt tools that are used by the Fed, the ECB or the Bank of England, Simor noted that these means cannot be implemented in Hungary because the security market is a “tiny part" of the economy.
Asked whether the government has officially notified the NBH about its intention to tap its foreign currency reserves should it fail to secure a credit line with the IMF/EC, Simor said he was not contacted in this regard yet.
“The use of central bank reserves has not come up in any discussion and I hope that it will not be raised in the future."Later he noted that as the country is likely to receive a credit line from the IMF/EC, “there would be a relatively painless and easy way to refill the NBH’s foreign currency reserves", should the government want to tap it, and that is why the bank asked for a guarantee it has not yet been given.
“I’ve offered twice to have a consultation between the central bank and the government about the Central Bank Act, but it has not happened yet."
Simor declined to comment the private letter European Commission President José Manuel Barroso wrote to Prime Minister Viktor Orbán, asking him to withdraw to cardinal laws (on the central bank and on financial stability) currently in front of Parliament.He reiterated what he told Parliament’s Economic Committee on Monday, namely that “the new Central Bank Act should not be passed in such a rush. Possible amendments and the risks attached should be considered. Passing the law at such speed is gambling with Hungary’s financial stability," he added.He said reaching an agreement with the IMF/EC in the near future would be of “primary importance"
As for the widely criticised draft central bank law he said some of the proposed amendments to the bill are welcome, as they do remedy the concerns of the NBH and the ECB. But he emphasised that there are two questions, “possibly the most important ones" that failed to be addressed and corrected. These are the number of Deputy Governor and the MPC and the way Deputy Governors are appointed.
“I’ve been working here for five years with two deputy governors and I can assure you there is no need for a third deputy governor," Simor said.
“I don’t understand how a lawmaker can come up with the idea that a third deputy governor is needed when he did not even ask the head of the institution in question about this."
Given how absolutely “baffling" this situation is, Simor said it is no wonder that some, including the ECB, believes that the aim of this change would be to influence decision making at the NBH, while hurting its independence.
He said changing the nomination rules also makes no sense. (Currently the NBH Governor nominates the deputies to the PM, who refers them to the President for appointment, According to the amendment proposal, however, the Prime Minister would nominate the new deputy governors, without consulting the NBH chief.)
About another proposal to extend the Monetary Council so that the mandate of its members would not expire at once, Simor said it makes no sense to increase the MPC’s size, adding that mandate of current MPC members could be extended by one or two years and that they may legally remain in office for two consecutive terms.
“It is unfortunate from several aspects. The person who wrote and approved this (statement) is not aware of the principal of central bank independence. A government criticising a central bank rate decision this way is incompatible with this principal. And this is not the first time either," Simor said. He also found it odd that the ministry released its statement one minute after the MPC announced its rate decision, while some news agencies were not that fast reporting the rate hike.
“It is unacceptable that government politicians swear on everything that they will respect the central bank’s independence and then they’re doing exactly the opposite," he added.
Simor noted that his view is shared by the ECB, the IMF and the European Commission. “Everybody’s saying that, but they apparently cannot hear it."
As for the co-operation government politicians have been urging the NBH to strengthen with the cabinet, Simor said this cannot be done alone.
“Our co-operation..., well it obviously takes two to tango. But let me stress that as long as the question of central bank independence can even arise as a question and we have to argue and debate about this all the time... I don’t understand how they can talk about co-operation."
Simor reminded that the NBH implemented a host of measures that were to boost liquidity (and subsequently lending) in the banking system, but he noted that the problem lies elsewhere.
“These programmes were to improve the liquidity situation of the banking system and make sure it (the shortage of liquidity) is not a problem for lending. But all our analyses show that the hurdles are not linked to liquidity rather than risk aversion," he said, adding that the bank tax, and the government’s latest measures to assist FX mortgage debtors (including delinquent borrowers) and the early repayment programme almost exhausted the banks’ capital buffer.
Simor also said the NBH could relaunch its mortgage bond programme, but only if the banks request it, because there was hardly any demand for it during the one year this programme ran.
Responding to the Economy Ministry’s proposal to adopt tools that are used by the Fed, the ECB or the Bank of England, Simor noted that these means cannot be implemented in Hungary because the security market is a “tiny part" of the economy.
Asked whether the government has officially notified the NBH about its intention to tap its foreign currency reserves should it fail to secure a credit line with the IMF/EC, Simor said he was not contacted in this regard yet.
“The use of central bank reserves has not come up in any discussion and I hope that it will not be raised in the future."Later he noted that as the country is likely to receive a credit line from the IMF/EC, “there would be a relatively painless and easy way to refill the NBH’s foreign currency reserves", should the government want to tap it, and that is why the bank asked for a guarantee it has not yet been given.
“I’ve offered twice to have a consultation between the central bank and the government about the Central Bank Act, but it has not happened yet."
Simor declined to comment the private letter European Commission President José Manuel Barroso wrote to Prime Minister Viktor Orbán, asking him to withdraw to cardinal laws (on the central bank and on financial stability) currently in front of Parliament.He reiterated what he told Parliament’s Economic Committee on Monday, namely that “the new Central Bank Act should not be passed in such a rush. Possible amendments and the risks attached should be considered. Passing the law at such speed is gambling with Hungary’s financial stability," he added.He said reaching an agreement with the IMF/EC in the near future would be of “primary importance"
As for the widely criticised draft central bank law he said some of the proposed amendments to the bill are welcome, as they do remedy the concerns of the NBH and the ECB. But he emphasised that there are two questions, “possibly the most important ones" that failed to be addressed and corrected. These are the number of Deputy Governor and the MPC and the way Deputy Governors are appointed.
“I’ve been working here for five years with two deputy governors and I can assure you there is no need for a third deputy governor," Simor said.
“I don’t understand how a lawmaker can come up with the idea that a third deputy governor is needed when he did not even ask the head of the institution in question about this."
Given how absolutely “baffling" this situation is, Simor said it is no wonder that some, including the ECB, believes that the aim of this change would be to influence decision making at the NBH, while hurting its independence.
He said changing the nomination rules also makes no sense. (Currently the NBH Governor nominates the deputies to the PM, who refers them to the President for appointment, According to the amendment proposal, however, the Prime Minister would nominate the new deputy governors, without consulting the NBH chief.)
About another proposal to extend the Monetary Council so that the mandate of its members would not expire at once, Simor said it makes no sense to increase the MPC’s size, adding that mandate of current MPC members could be extended by one or two years and that they may legally remain in office for two consecutive terms.
