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Hungary delays central bank law change until autumn, minister says

Published 03/25/2024, 06:19 AM
Updated 03/25/2024, 06:22 AM
© Reuters. FILE PHOTO: Hungarian Central Bank Governor Gyorgy Matolcsy speaks during a business conference in Budapest, Hungary, March 10, 2020. REUTERS/Bernadett Szabo/File Photo

By Gergely Szakacs

BUDAPEST (Reuters) - Hungary is likely to submit a law amending central bank regulations to parliament in the autumn, its economy minister said on Monday, delaying changes that have pushed the forint to a one-year low and raised concern over the bank's independence.

Prime Minister Viktor Orban and his former ally, central bank Governor Gyorgy Matolcsy, have been embroiled in an increasingly bitter policy spat since the 2022 election, trading blame over the worst inflationary surge in the European Union.

Orban's government has drafted legislation that would widen the central bank supervisory board's controls over activities outside the bank's basic tasks, such as setting monetary policy.

"The law change remains on the agenda," Economy Minister Marton Nagy told a news conference, adding that the law would not affect the bank's basic tasks.

"Talks between the Finance Ministry, the National Bank of Hungary and the Supervisory Board are underway on how we can submit the amendment so that it stands up to all scrutiny of central bank independence."

“There are debates and consultations about this. I think there is a stronger likelihood that (it will be submitted to parliament) in the autumn,” Nagy said.

In a Feb. 26 opinion, the European Central Bank found no major problems with the legal amendment but stressed that broadening the supervisory board's purview should not undermine the NBH's "ability to carry out independently a task falling within the scope of the European System of Central Banks".

The NBH has warned that the law change erodes its independence and limits the room for manoeuvre in monetary policy. It will hold its monthly policy meeting on Tuesday.

Economists polled by Reuters expect the bank to revert to a 75 basis-point pace of easing, lowering its base rate to 8.25%after increased market volatility, driven in part by the escalating standoff between Matolcsy and Orban.

© Reuters. FILE PHOTO: Hungarian Central Bank Governor Gyorgy Matolcsy speaks during a business conference in Budapest, Hungary, March 10, 2020. REUTERS/Bernadett Szabo/File Photo

Nagy, who has repeatedly put pressure on the bank to cut rates more sharply to aid the economic recovery, declined direct comment on the rate decision.

"The central bank will decide what kind of rate easing cycle it will implement," he said. "I think rates will normalise. The faster rates come down, the better for the economy, but the central bank has other considerations to take into account."

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