Julia Király, deputy-governor of the Hungarian central bank (pictured left), resigned on Monday saying that moves made by György Matolcsy, the newly appointed governor, were damaging both the bank’s hard-earned credibility and the national economy over the longer term.
Last week Matolcsy announced a new central bank funding scheme which aims to get cheaper lending to small businesses and also reduce their exposure to euro-denominated loans.
The Hungarian currency is a bit like the famed “Grand old Duke of York” of late – the Duke who according to the traditional nursery rhyme, marched his 10,000 men up the hill, then back down again, all to no avail.
The new “postmodern” monetary policy unveiled on Thursday was widely – and worriedly – anticipated, but there was something of a relief rally afterwards. Where we go from here? It’s anyone’s guess.
By Peter Attard Montalto of Nomura
The Hungarian central bank has on Thursday embarked on a risky strategy of postmodern policy in a bid to boost growth through lending via the provision of liquidity. It is labelled as a “Funding for Growth Scheme”.
So will it work? And longer term, what does it mean for the forint?
Hungary’s new central bank president Gyorgy Matolcsy has unveiled a new 250bn forint (€831m) lending plan which allows banks to borrow at zero per cent from the central bank.
The banks can then lend to businesses with the funds at a maximum 2 per cent rate of interest, a measure aimed at getting loans to small and medium-sized businesses to help them replace their foreign currency loans with forint loans. The forint initially depreciated on Thursday, to around 303.8 to the euro, before reversing to around 300.6 to the euro at 1pm CET, an appreciation of 0.6 per cent.
The Hungarian forint plunged through the 300 per euro barrier on Monday as investors digested unexpectedly speedy moves by György Matolcsy, prime minister Viktor Orbán’s new man at the central bank, to impose his “non-traditional” brand of monetary policy.
Adding to the gloom was a warning that Orbán’s latest round of constitutional amendments, due to be voted on in parliament on Monday, may contravene European Union law.
György Matolcsy, Hungary’s new central bank governor-designate, may have earned a reputation for innovation and unorthodoxy when minister of economy. But he insists he will be a veritable pillar of conservatism and reliability in his new job – and that’s what he told a parliamentary nomination hearing on Friday.
However, the 100m-forint question is, is this for real, or just a charade to calm the markets?
The Hungarian forint slipped by 0.67 per cent against the euro on Thursday after Gyorgy Matolcsy, the economy minister who has been tipped as the next governor of the central bank, described previous policies such as pursuing a strong currency to suppress inflation as “catastrophic”.
That may well be one word Hungarian businesses, home owners and even some government colleagues are using to describe Matolcsy himself, now that their foreign currency debts are worth that much more.