Hungary nominated András Simor, the head of Deloitte & Touche LLP local office, to head the country's central bank from next month and help steer the nation toward euro adoption.
Prime Minister Ferenc Gyurcsány said he asked Simor to replace Zsigmond Járai, whose six-year term expires on March 2. The nomination must be approved by President László Sólyom. The new president will take over the bank as inflation may accelerate to the fastest pace in six years and rates are already the European Union's second-highest behind Romania's. Gyurcsány's choice will probably mend relations between the central bank and the government which soured amid Járai's continued criticism of budget policy. „The market views him positively, I think he's a pretty good choice,” said Nóra Szentiványi, Central Europe economist at JPMorgan and Co. Inc. in London. „He has a good economic background, is a good manager and has also a good reputation.” Simor, has headed the local Deloitte office since 2002. He previously spent four years as chairman of the Stock Exchange. Between 1989 and 1997, he worked for Creditanstalt AG, the Austrian lender that is now part of the Unicredit SpA.
The forint rose after the nomination and traded at a six-week high of 252.06 against the euro at 6:02 p.m. in Budapest compared with 253.01 late yesterday. The yield on the Hungarian 6% benchmark bond due October 2011 was unchanged at 7.43%. „His biggest challenge will be to safeguard the central bank's image and maintain price stability,” said Szentiványi. „I would expect him to be more dovish than Járai. He will probably focus more on the central bank's image rather than price stability.” Simor told reporters after being introduced by the premier that there is „no reason not to support” inflation targeting and said that protecting central bank independence is „terribly important.” The bank's mid-term inflation target of 3% will remain, he said. Simor declined to comment on the current state of inflation or the setting of interest rates. „Hungarian export is performing relatively well,” Simor said. „The improvement in the external balances is obvious.”
The premier said he selected Simor because „of all the available candidates he is the most fit for the job in all respects.” Simor began his career at the central bank, after graduating with a degree in international finance from Corvinus University in Budapest in 1976. His worked in debt management at the bank's London unit and later in the treasury department in Budapest. Gyurcsány last year chose him to be part of an independent advisory committee that oversaw the drafting of the country's euro-adoption plan. The government has raised taxes and cut subsidies, after running up the EU's widest budget deficit last year. Simor later said the government must closely follow the plan which was also endorsed by the European Union. „I saw a sense of commitment in the prime minister then and I don't think much has changed,” Simor said today. „The program is moving forward. If executed as planned, it will open an opportunity for euro adoption.”
Inflation in Hungary accelerated to the fastest in more than two years, reaching 7.8% January, the highest since September 2001, after the government increased utility bills. The bank responded by raising interest rates to 8% from June to October last year in five steps. Hungary's change in monetary policy leadership comes less than two months after Polish President Lech Kaczynski rattled investors by picking former PKO BP acting CE Slawomir Srzypek to lead the country's central bank. The Polish selection was seen as being too close to the government and the country's currency dropped 2.5% during the following month. Investors warned that Hungary's next central bank president will have to balance between antagonizing the government and catering to politics. „An improvement of relations is good, but it stops when they are forgetting about their primary mission,” said Franz Schardax, who helps manage $388 million worth of stocks and bonds at Pioneer Investments in Vienna. „Good cooperation is not a bad thing, but the bank has to be critical sometimes.”
Hungary's central bank under Járai has clashed with the government over budget overruns and the inflation outlook. Cabinet ministers criticized the bank for raising interest rates, which they said contributed to the deficit. Járai, has called economic policy „chaotic” and „cancerous.” Aside from pacifying the bank's relations with the government, the new president will also have to create consensus within the rate-setting Monetary Council. Policy makers were divided about the past five rate decisions, with some of them publicly criticizing the majority vote. „It's striking how deep the fighting runs within the council,” said Zsolt Papp, an economist with ABN Amro Groep NV in London. „A more unified image will need to be created.” Along with Járai's replacement, the departure of his deputies may also ease tensions among policy makers. György Szapáry will leave the bank on February 21, while the terms of Henrik Auth and Péter Adamecz end on July 2.
„Simor may not have theoretical or practical experience in monetary policy, but he has the reputation of a talented manager,” said Michal Dybula, an economist at BNP Paribas in Warsaw. „I do not expect any dramatic changes to Hungary's monetary policy, even though without Járai there will be one hawk less.” Járai, in a February 6 interview with newspaper Magyar Hirlap, warned that interest rates may decline, triggering faster inflation, if the government picks a new central bank head to back its policies. Schardax at Pioneer Investment said those fears were probably unfounded and the track record of the remaining rate-setters suggests that a substantial policy change is unlikely. „It's just one vote,” he said. „One shouldn't overestimate the impact of just one central banker.” (Bloomberg)