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Parliament approves new Central Bank Act

Hungary's Parliament approved on Friday the new Central Bank Act.

Before the final vote, MPs approved several changes to the bill, many of them the result of concerns raised by the European Central Bank (ECB). Under one such modification, external members of the National Bank of Hungary's (MNB) rate-setting Monetary Council will continue to be elected by Parliament rather than appointed by the President of the Republic. A salary cap for NBH staff - set at the salary of the deputy governors - was also struck from the original bill.

Antal Rogán, chairman of Parliament's Economy and IT Committee, said before the vote was taken that lawmakers took into account "more than 90%" of the ECB's opinion.

In an interview on public radio before the vote on Friday, Prime Minister Viktor Orbán said that the government had accepted 13 of the 15 points concerning the new act that Brussels had made. He added that two remained on which there were differences of opinion that the country would "fight in the framework of a legal procedure" if necessary. Orbán told the radio the new central bank act served the interests of the Hungarian economy and bettered the cooperation between the central bank and the government.

The new act creates a position for a third deputy governor. It also gives the power to recommend the deputy governors to the President to the Prime Minister, instead of the MNB governor.

The change does not affect the mandates of the bank's deputy governors at present.

The new act raises the maximum number of Monetary Council members from seven to nine. It also broadens the Monetary Council's legal powers, adding to the body's tasks decisions on the scope of the deputy governors' authority, based on recommendations by the central bank governor.

The act declares that the government may not attempt to influence the MNB and its management It also states that the governor's obligation to give reports to Parliament may not interfere with the independence of the central bank's decision makers.

The new act mandates the MNB to uncover systemic business and economic risks that threaten the financial intermediary system, help to prevent these risks and reduce or eliminate existing systemic risks. It also assigns the central bank the task of assessing the liquidity positions of big financial institutions.

Rogán said the inclusion of the latter was necessary because it had been left out of the bill, while it was included in a draft sent to the ECB which the bank had supported.

Under the new act, the minister in charge of fiscal affairs will submit the central budget draft to the central bank only after, but immediately after, it is approved by the government, instead of before. The MNB may send its opinion on the budget to the minister in charge of fiscal policy and the central bank governor may also present the opinion at meetings of the Fiscal Council, but this must not restrict the free exercise of the governor's rights as a member of the council.

MPs decided to allow the MNB until the end of March to harmonize its charter with the new act, instead of immediately.

The new act limits the salary of the MNB governor to ten times the average monthly wage for the national economy in the previous year, as calculated by the Central Statistics Office (KSH), and establishes the cap as a benchmark for salaries of the deputy governors and Monetary Council members. Deputy governors' remuneration is limited to 70% or 80% of the amount, depending on which deputy governor is deputy chair of the Monetary Council, and Monetary Council members' salaries are capped at 60%.

The chairman of the central bank's supervisory board is to receive a HUF 1.2 million monthly honorarium.

The new act, enshrined as a cardinal law, requiring a two-thirds majority to amend, was made necessary by Hungary's new Constitution, which comes into force on January 1, 2012.