(Bloomberg) — Hungarian Prime Minister Viktor Orban nominated his longtime finance minister Mihaly Varga to helm the central bank, with investors on alert for potential implications for one of the tightest monetary policies in Europe.
The soft-spoken, bespectacled 59-year old will take over the National Bank of Hungary from March, when Governor Gyorgy Matolcsy’s second and final term ends, Orban said on state radio on Friday. The premier was also expected to give Marton Nagy, his powerful economy minister, the finance portfolio in what will be a combined “superministry” for economic policy, though he didn’t confirm that on Friday.
“I picked the most predictable and level-headed person,” Orban said. “I can safely say that Mihaly Varga is Hungary’s most experienced economic policymaker and economist.”
The forint gained 0.2% against the euro after Orban’s announcement, rebounding from a two-year low a day earlier. The changes come at a time when the economy is in a recession, the currency is trading around a two-year low and doubts grow about how Orban will manage stimulus steps without crashing the cash-strapped budget.
Adding to a sense of urgency for the four-term prime minister is the fact that his party is lagging a new opposition group in most polls ahead of the election in the first half of 2026.
The measured Varga has been hard to parse for investors. He’s been a supporter of fiscal conservatism in successive Orban governments that have increasingly embraced freewheeling spending, especially after the Covid-19 pandemic. His influence waned as that of Nagy, a former deputy central bank governor who’s backed heavy government intervention in the economy, has surged.
“Varga’s career so far would indicate a prudent and cautious approach to central bank policy,” despite concerns that political loyalties may get in the way, said Zoltan Torok, head of research at Raiffeisen Bank in Budapest. “My expectation is that as central bank governor, Varga will subordinate political loyalty to professional considerations.”
Loyalty Test
Varga may soon find himself in the cross-hairs of the government that he’s loyally served.
The forint’s weakness has forced the central bank to halt monetary easing in recent months despite the ongoing recession and headline price-growth near the bank’s 3% target. At 6.5%, the key rate is tied with Romania for the highest level in the European Union.
In a HirTV interview on Monday, Nagy said the benchmark interest rate can “hopefully” be lowered as it’s currently running more than 3 percentage points above inflation, which he said was “not justifiable.”
Orban’s government has been looking for a more pliant central bank to help it foster growth with looser monetary policy. Matolcsy, whom Orban previously called his right hand man on economy policy, has over time become one of the fiercest critics of fiscal profligacy.
Matolcsy had blamed a loose budget policy, including record election spending two years ago, for almost causing a currency crisis in 2022 and for fueling inflation to the highest level in the EU in its aftermath.
Addressing investor concerns, Cabinet Minister Gergely Gulyas told reporters on Thursday that the government will continue to guarantee the independence of the next central bank governor.
“Hungary’s post-pandemic fiscal track record doesn’t inspire confidence in Minister Varga’s ability to resist political pressures,” said Viktor Szabo, an emerging-market fund manager at Abrdn Plc in London. “This is unlikely to change” at the central bank.
(Updates with Orban comment in third paragraph, forint in fourth.)
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Publish date : 2024-11-28 23:44:00
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