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City sees no policy U-turn by new MPC nominees

The two new external Monetary Policy Council (MPC) members are not "political" figures and their nomination should alleviate market worries over "politically motivated" rate cuts, London-based emerging markets analysts said after Parliament had announced the two nominees on Monday.

Analysts at Barclays Capital said that the nomination of Andrea Bártfai-Mager and Ferenc Gerhardt "creates a link to the government" through their earlier work relationship with Zsigmond Járai, the previous MNB governor who has recently been appointed by the government to head the bank's supervisory board, but "neither of the two (nominees) can be considered to have a high political public profile".

"Investors should welcome this decision ... as it can be interpreted as the government avoiding the appointment of overtly political and potentially non-consensual individuals to the monetary council".

This could also be interpreted "as a peace message to the ECB", which recently criticized the Hungarian government again for amending the central bank act.

The ECB, including Trichet personally, had openly voiced their criticism, which now "seems to have had an impact on (Prime Minister Viktor) Orbán", Barclays Capital said.

"It is probably early to say that today's announcement will fix the relationship between the Fidesz government and the MNB, as the former seems to harbor deep misgivings towards Governor Simor personally ... however, it does reduce the risk of a further escalation of the tensions and creates a high chance for monetary policy continuity".

Also, with only two new outside appointees, governor Simor and his two deputy governors now continue to have the majority vote in the council, and "the government may keep it this way for now", analysts at Barclays Capital said. "The risks of politically-motivated interest rate cuts ... should be removed", they added.

JP Morgan's London-based emerging markets economists said after the nominations were announced that Fidesz seems to be "cautious" about the market reaction to the recently released fiscal package and the changes in the MPC. "So they decided to appoint only two names now, who are unlikely to spark negative market reaction or more negative comments from the ECB".

The change in the nomination methods of new MPC members "questions the independence of MPC decision making and we have to wait for two other MPC newcomers to make clear-cut conclusions regarding to monetary policy implications ... yet, we believe that fears over imminent rate cuts because of new MPC members are unjustified (as) the rate decisions will continue to be driven largely by MNB staff inflation forecasts, EUR/HUF and the Hungarian credit premium, in our view", JP Morgan's analysts said.