András Simor's nomination to head the National Bank of Hungary (MNB), announced by Prime Minister Ferenc Gyurcsány last Friday, is a clear sign of Gyurcsány’s sustained bargaining strength, Goldman Sachs said on Monday.
In its daily New European Markets comment released in London, Goldman Sachs said the nomination is "good news", both because Simor is a good candidate and because choosing him is a sign that the PM is still strong. "We understand that Simor was the PM's personal preference, so the nomination indicates that, despite recent setbacks, the PM's bargaining position both within the Socialist Party and in relation to the junior coalition partner Free Democrats is still strong".
Simor is not a macroeconomist, but he has an impressive CV, he is respected and he has been around for long enough in the financial sector "to grasp the important issues when leading the MNB". In terms of monetary policy bias, he will be a pragmatist and will be difficult to categorize in terms of a dove/hawk framework, Goldman Sachs said. But he will certainly try to increase the inflation fighting credibility of the MNB and in that sense will be "a cautious hawk".
"We believe that he is against FX intervention apart from when it is absolutely necessary ... and we expect a great emphasis on communication with markets and predictable policies". Goldman Sachs said it maintains its view that the Monetary Council will have one more rate hike to demonstrate that it is in control of inflation and in response to high wage and inflation data. "We also expect that the MNB's relationship with the government will be better than under his predecessor", it added, echoing the views of other London-based emerging markets analysts who spoke to Econews after the announcement had been made on Friday.
Dwyfor Evans, Vice President for emerging markets strategy at Bank of America, told Econews on the day the nomination was announced that Simor is going to be significantly less critical of government policy than Zsigmond Járai, the outgoing president, and that the "often acrimonious relationship" between the government and the central bank "could moderate somewhat". Simor's qualifications were also praised in the City.
Raffaella Tenconi, emerging markets strategist at Dresdner Keinwort, told Econews that his background is relatively good, he has experience in the financial markets, and is also relatively independent from the political scene. This is very important at the moment because "the worst thing that could have happened to Hungary is to have a nominee that either was not qualified or was politically biased", she said. Views over any potential policy shift in the MPC under Simor were diverging, however.
Tenconi said that Járai was a "very strong hawk", so the MPC "is clearly moving towards the dovish side". Overall, however, "it's not fair to say that the MPC will turn dovish ... it will just be slightly less hawkish, but it will still focus on price stability", she added. Dwyfor Evans said, however, that Járai's departure will remove one the "key hawks" from the MPC, and "with Péter Adamecz and Henrik Auth leaving as well in July, and with Simor now free to nominate two new MPC members, it opens up the prospect of a substantially more dovish MPC" in the second half of 2007. (Bloomberg)