Hungarian c.bank's independence violated by government decree, ECB warns

On 22 March 2022, a decree was published in the Hungarian Official Gazette, restricting access to the National Bank of Hungary's (MNB) discount bill and by extending a cap on large commercial bank deposits until end-June, on the content of which the government did not consult the European Central Bank. The ECB decided to issue an own-initiative opinion on the government decree.

According to the ECB's interpretation, in autumn 2022, the government perceived that high interest rates were being realised on some investors' deposits with credit institutions under contracts whereby investors deposit funds with credit institutions and the latter then deposit these funds with the MNB. This allowed these investors to realise higher interest rates than those available on debt securities issued by the government. In order to prevent this situation, the government adopted the interest rate cap. According to a statement by the Minister of Economic Development, the interest rate cap was necessary to ensure the smooth functioning of lending and distribution of government securities and the channelling of funds into the economy by ensuring that the interest paid by the MNB on deposits would not be available to investors.

In 2021 and 2022, the MNB rarely issued discount bonds. Following the introduction of the interest rate cap, the MNB significantly changed its discount bond programme by announcing regular weekly tenders. The ECB understands that this encouraged credit institutions to purchase discount bonds directly from the MNB and to sell these bonds to institutional investors subject to the interest rate ceiling. Following the changes to the MNB's discount bond programme, the volume accepted under the programme increased significantly. In the ECB's interpretation, the increased reliance on the discount bond programme was intended, inter alia, to address the apparent weakening of the monetary policy transmission mechanism triggered by the interest rate ceiling on demand deposits imposed by the government decree.

When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body. The Union institutions, bodies, offices or agencies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the European Central Bank or of the national central banks in the performance of their tasks.

The ECB understands that the MNB's discount bond programme is a monetary policy instrument included in the overall definition of the MNB's monetary policy and implemented by the MNB as part of its implementation. However, in addition to extending the interest rate ceiling until 30 June 2023, the Government Decree prohibits certain entities from purchasing debt securities denominated in Hungarian forint issued by the central bank of a Member State until 30 June 2023. The government decree including the interest rate ceiling thus conflicts with the independence of the MNB, as it prevents the MNB from independently choosing the resources and instruments necessary to conduct an effective monetary policy and to independently achieve the objective of price stability.

The government decree thus infringes the independence of the MNB under Article 130 of the Treaty,

the ECB said in its statement.

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