(Bloomberg) -- Hungary’s next central bank chief vowed to maintain the institution’s independence, as he sought to soothe investor concerns about the future of monetary policy in the face of potential government pressure.
Finance Minister Mihaly Varga, whom Prime Minister Viktor Orban nominated last month as the next governor of the National Bank of Hungary, said the central bank’s 3% inflation goal was appropriate, pushing back against earlier efforts inside the cabinet to raise it to allow for looser monetary policy.
“Reaching and maintaining the 3% inflation target is the priority,” Varga told a parliamentary confirmation hearing on Monday. “Central bank steps will be decided with a view to stability and accounting for the money- and capital-market environment.”
Varga is slated to take over the central bank in March, after Governor Gyorgy Matolcsy’s second and final six-year mandate ends. Matolcsy, a former Orban ally, has become a fierce critic of economic policy, particularly of freewheeling spending that’s made the forint one of the most vulnerable currencies.
Investors have been on the lookout for signs that Varga may do the Orban’s government bidding once he joins the central bank, including spurring interest rate cuts to kickstart an economy that’s mired in a recession. Pressure may mount with Orban’s Fidesz party, which has ruled since 2010, behind in polls ahead of the next elections in 2026.
Financial Stability
At the hearing, Varga stuck to a market-friendly script, citing central bank law which prioritizes reaching the inflation goal and only allows the institution to work with the government to boost economic growth if it doesn’t threaten financial stability.
He said it was too early to elaborate on exact interest-rate moves months before he takes the helm at the bank, adding that he would try to avoid public disputes on policy once he is in the job.
Varga has already started building out the central bank’s new leadership, saying Debt Agency chief Zoltan Kurali and Finance Ministry State Secretary Peter Beno Banai would join him on the team. He didn’t elaborate on the positions they would take.
The forint rose less than 0.1% to 408.4 against the euro after Varga’s hearing, continuing a recovery from a two-year low around 415 in late November.
The forint’s weakness — it’s down 6% against the euro and almost 11% against the dollar this year — has forced the central bank to halt monetary easing. It has refrained from additional stimulus despite the recession and headline price-growth that’s within the central bank’s one percentage point tolerance band around the 3% inflation goal.
The Monetary Council is expected to keep the key rate at 6.5% on Tuesday, tied with Romania for the highest level in the European Union.
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