Hungary government, central bank in "alliance" from 2013

Reuters News
Posted: Dec 15, 2012 5:41 PM

BUDAPEST (Reuters) - A leadership change at Hungary's central bank next year will allow the government to build a strategic alliance with the bank to boost the economy, Economy Minister Gyorgy Matolcsy said on Saturday.

Matolcsy, a member of Prime Minister Viktor Orban's government that has often clashed with the bank over policy, also said the bank would have to focus on helping growth and employment as well as curbing inflation.

"I don't think that in these crisis years any central bank in the world would and could keep only one aspect in the forefront: the aspect of inflation," Matolcsy told public radio.

"Just look at how the European Central Bank has switched to an entirely different monetary philosophy in the crisis years post-2008."

Orban's government has put pressure on the central bank to do more to help the recession-hit economy and some analysts have said the appointment of a new governor at the National Bank of Hungary in March 2013 could usher in an era of unconventional steps, after a series of rate cuts this year.

Citing inflation risks, outgoing governor Andras Simor and his two deputies have opposed the bank's recent rate cuts, which were pushed through by the four other rate-setters appointed by Orban's party in parliament last year.

Simor's six-year term expires in March, and his two deputies will also leave the bank next year. Orban is expected to pick a new governor loyal to his government.

Matolcsy's name as a candidate has also emerged in the market and local media. When asked about this, he said:

"There are many names floating around these days and weeks, but I myself have not received such a request, but I am sure, as this has been mentioned, that next year Hungary's central bank will have a leadership that will be in a strategic partnership with the government."

ECB President Mario Draghi said last week in Budapest that Hungary's central bank must retain its independence to be credible - a rare public warning about undue political influence.

Matolcsy, who has been the architect of unorthodox policies that included heavy taxes on banks and a nationalisation of private pension funds, also said he was not sure Hungary should tap international markets next year, after it successfully financed debt from domestic issuance in 2012.

"As for myself, I'm not quite sure that we should issue a foreign currency bond in global markets next year," he said.

Earlier this month, the minister in charge of Hungary's stalled loan talks with the IMF, flagged a possible foreign currency issue in the first quarter of 2013.

Budapest has rolled over expiring debt from domestic issuance since it last tapped international markets in 2011 and has financing buffers deposited at the central bank.

Matolcsy also said Hungary's economy could grow faster next year than the government's current projection for 0.9 percent.

He said the economy could be able to grow faster than 1 percent, perhaps even closer to a rate of 2 percent.

Analysts in a Reuters poll this week forecast stagnation for 2013 after a contraction this year.

(Reporting by Krisztina Than; Editing by Stephen Powell)