Hungarian government may reconsider amendments to Central Bank Act

Hungarian government may reconsider amendments to Central Bank Act
Governor Gyorgy Matolcsy (left) and Finance Minister Mihaly Varga. / bne IntelliNews
By Tamas Csonka in Budapest March 15, 2024

The Hungarian government has decided to return the proposal for amending the central bank law for further consultation after it was discussed at the March 13 cabinet meeting, financial website Portfolio wrote on March 14, citing information from Bloomberg.

It is not yet clear what the fate of the law will be, but based on Bloomberg's information, it seems likely that the government will reconsider the amendment in order to address concerns surrounding central bank independence, Portfolio added.

As bne IntelliNews predicted, the government may have retreated due to reactions in the financial markets.

Finance Minister Mihaly Varga said in Facebook post on Thursday that a "detailed and thorough" consultation with the central bank on the draft legislation will take place before its submission to lawmakers. The European Central Bank had weighed in on the draft earlier, he wrote, adding that the goal is clear: regulation is necessary that further ensures the Hungarian National Bank's (MNB) independence while strengthening transparency.

The MNB has compiled its list of reservations in a statement issued on its website on March 12 about the amendment, which it says will curb its independence. The MNB said the finance ministry’s proposals sent to the ECB for consultation would extend the scope of power of the supervisory board, in which government-appointed members make up the majority.

The supervisory board’s approval would be required for decisions involving expenditures exceeding the amount defined in the founding charter of the bank, furthermore, it could be authorised to audit economic entities majority-owned by the MNB, or its foundations.

The bank fears this will be used as a tool to influence its monetary policy. "If passed, the new law could be used to build narratives against the Hungarian economy and hurt our financial stability," the Hungarian National Bank (MNB) said this week.

The report about the government possibly changing its course helped the forint gain more than 1% against the euro on Thursday, drifting from the 400 level to 396.