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Tensions grow between MNB and political elite

The monetary policy of the central bank (MNB) was criticized unexpectedly by both the Hungarian government and the opposition after the last decision of the Monetary Council on increasing the interest rate, the latest analysis of the Political Capital (PC) research agency’s Risk Forecast Division said.

Political Capital expects political pressure to intensify in the future. In terms of the credibility of monetary policy, it is crucial to see whether MNB is able to withstand intensifying political attacks, as confronting goals of the bank and the cabinet are more visible today, than in the last few years, PC’s press release on the issue states. The central bank has been standing up for the inflation target determinedly and vigorously since the abolition of the trading band.

Leaders of the institution take every chance for a verbal intervention, stating day by day that MNB will take the measures needed to keep the inflation target. Accordingly, the Monetary Council has been continuing to lift the benchmark interest rate lately, PC said. Objectives of MNB and the cabinet only accord partly. Sometimes conflict is inherent between monetary and fiscal policy.

Although cooperation was (at least) seemingly harmonious between the central bank and the cabinet after the appointment of András Simon, the central bank has found itself in a crossfire of attacks between the government and the opposition. Although high inflation is unfavorable for governance, it is easier to tackle with on the short run than the effects of the interest rate increase, which explains the critical remarks from the government, PC adds. (press release)