By Krisztina Than
BUDAPEST (Reuters) - Prime Minister Viktor Orban is expected to nominate the man he calls his "right hand" to head Hungary's central bank on Friday, a move that could prompt cheap money being pumped into the economy ahead of elections in 2014.
Orban, who has often been at loggerheads with the European Union, banks and the International Monetary Fund, is widely seen as appointing Economy Minister Gyorgy Matolcsy, one of his closest allies, to replace hawkish Governor Andras Simor, whose six-year mandate is expiring.
Such a move would ensure Orban's influence on the National Bank of Hungary even beyond next year's elections, as the new governor will stay for six years.
Matolcsy has been the frontrunner for the job. He is the mastermind behind most of Budapest's experimental economic policies - including Europe's biggest bank tax and a huge private pension takeover - that have at times upset the EU, IMF and investors in the past three years.
Orban could yet surprise and nominate someone else - he likes to finalize his decisions at the very last moment - but markets and local media widely expect Matolcsy to swap his current government spot for the top job at the bank.
To replace Matolcsy as economy minister, Orban is expected to nominate Mihaly Varga, another close ally and a former finance minister whom investors see as a market-friendly.
With Matolcsy, a new, looser era could start at the central bank.
"A broad range of measures could enter the policy mix going forward," said Mujtaba Rahman, an analyst at Eurasia Group.
"Not only are we looking at lower interest rates and a weaker equilibrium exchange rate but the use of foreign exchange reserves and even (an asset-buying) type maneuver cannot be ruled out."
Investors would be watching closely to see whether Matolcsy will proceed with caution or launch new measures that some may see as risky to the volatile forint currency.
Facing elections, Orban, whose party has lost about half of its public support since the 2010 vote, needs to show crisis-weary Hungarian voters that the economy is finally moving out of the doldrums, after a recession last year.
"I have an idea what a good central bank governor is like, and how the central bank and the Hungarian economy could perform better if appropriate personal decisions are taken," Orban told private news channel HirTV on Monday without naming his choice.
Besides Simor, one of his vice governors, Ferenc Karvalits will also leave the bank at the end of March. It is not clear at this stage whether Orban will also name his successor on Friday.
Under the law, Orban can also pick a third deputy governor to Matolcsy but in that case in order to comply with the law, parliament will also need to appoint a new external member to the Monetary Council. Then the size of the rate-setting panel would expand to the maximum 9 members allowed by law.
(Editing by Jeremy Gaunt.)