For what might be the last time in a long time, Hungary’s central bank has increased rates by 25bp. The third rise since November takes the rate on the key two-week bill to 6 per cent.
The rise was expected, partly as a result of inflation and partly politics. Inflation was 4.7 per cent in the year to December, considerably above the target of 3 per cent. Politics, because it’s assumed the MPC would want to raise rates before a significantly altered rate-setting committee takes over in March.
The Fed is buying more bonds; the ECB might even be considering it. But Hungary is throwing in the towel on its bond-buying programme, saying the plan has not made “significant progress” in easing long-term forint funding conditions for banks.
Hungary’s central bank introduced the bond-buying programme on February 8, 2010, intending to buy up to HUF 100bn to the end of this year. Purchases in the secondary market went broadly as planned, with HUF 30bn of nominal value bought and mortgage-government bond spreads declining from 150–200 basis points in 2009 to 80–150bp now. Purchases in the primary market, however, were “much smaller than expected”, at about HUF 7bn.
The Hungarian cabinet has rejected the ECB’s opinion over a plan to cut central bankers’ pay, so the legislation will proceed to a vote next week.
The ECB feels the bill could compromise central bank independence. They argue the pay cut should only apply to successors of the current governor, Andras Simor, to allay concerns that the bill is intended to pressure current management. Adding to these fears will be the fact that the ruling Fidesz party has called for Mr Simor’s resignation.