György Matolcsy, the newly appointed Governor of Hungary’s national bank (NBH), has broken with the long-established practice of his predecessors and cancelled press conferences after interest rate decisions. His choice of not speaking with reporters after policy meetings has fueled fears that monetary policy-making in the country will become more opaque, The Wall Street Journal reported. Concurrently, market analysts warn that the central bank purchasing government securities on the secondary market would probably backfire.
Major changes
The central bank announced on Monday afternoon that there will be no press conference on Tuesday after the rate-setting meeting (i.e. after no policy meeting) of the Monetary Council. So, Governor Matolcsy, who took the helm at the NBH earlier this month, will not take questions, unlike his predecessors, who led forums that were widely followed by traders, investors and analysts, the WSJ noted.
Instead, the governor will speak after "strategic decisions," said his spokesman, András Simon, adding that the central bank will continue to issue statements after rate decisions. The bank didn't give any official explanation for the decision.
The paper reminded that Matolcsy has “carried out a shake-up" at the central bank since taking over, effectively demoting two Deputy Governors - Ferenc Karvalits and Júlia Király - and naming long-time confidante Ádám Balog as a replacement. He has also replaced the chief economist, and moved to ensure that he has the final say over staff members' pay and employment. The central bank has also cancelled conferences of central banking experts, citing savings considerations and launched an internal tender for its in-house economists to look into topics ranging from ways to inject money into the economy to boosting lending and economic growth. These moves have prompted speculation that the central bank could pursue unconventional policies in an effort to revive the economy.
Criticism from market players
“The move to reduce communication after rate decisions raises questions about transparency at the central bank. Investors value regular and relevant information about policy-making, since it lends credibility, consistency and predictability to policy moves, the paper said.
"If central-bank policy decisions come like a bolt from the blue sky and several such decisions come, that would reflect that transparency has shrunk," the WSJ cited Zsolt Darvas, a researcher at Brussels-based economics think tank Bruegel, as saying.
Traders and analysts have said uncertainty about bank policies has been one of the main reasons for a sharp recent decline in the value of the Hungarian forint, which last week hit a 14-month low against the euro.
"There is a huge amount of change ongoing at the National Bank of Hungary, and the question is: Will this impact on the ability of the institution to function in a professional way?" said Standard Bank emerging markets analyst Timothy Ash.
The basic problem is that the central bank is not communicating actively and openly but information gets public in accidental ways," said Levente Pápa, a foreign-exchange strategist at OTP Research. Pápa said another risk is that limiting the diversity of views within the central bank could lead to bad policy choices.
"There has been no example since the adoption of Hungary's Central Bank Act in 1991 that the full leadership of the central bank is replaced within a short period of time," said former Governor Péter Ákos Bod. "This situation would make clear central bank communication especially significant."
Deputy Governor stands beside Matolcsy
Ádám Balog, who also switched the Economy Ministry for the central bank earlier this month, in Parliament on Monday denied claims from an opposition politician that the bank's independence has come into question with Matolcsy in charge.
"I reject this on behalf of the governor as well," the WSJ cited Balog as saying.
"It's very harmful for the country if a distorted picture is painted of the central bank's leadership, which will make its decisions fully with regard to the central bank law."
He admitted, though, that the change at the helm of the NBH could have caused some uncertainty among market players but he attributed this mainly to imperfect communications.
Ádám Balog, Deputy Governor of the National Bank of Hungary speaks at a plenary session in Parliament on 25 March 2013.
This could be one of the central bank’s weapons
Concurrently, Bloomberg summed up market players’ views about the possible bond purchases by the central bank on the secondary market, a move hinted at by Economy Minister Mihály Varga in an interview with Portfolio.hu.
“The bond market is functioning smoothly, the central bank buying bonds could be interpreted as state financing, which would be the worst possible message to send and a hotbed for a drastic forint weakening," János Samu, economist at Budapest- based brokerage Concorde told Bloombeg by phone.
The central bank potentially buying state debt poses a risk to the currency by boosting “forint liquidity, which might not be fully sterilized," Koon Chow, an emerging-market strategist at Barclays Plc in London, said in an e-mail today.
“Also, it means yields reflect a policy drive rather than perceptions of what is fair value on bonds and this risks triggering selling of bonds by non-resident investors."
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