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ECB expresses concern new Central Bank Act could hurt MNB independence

The European Central Bank expressed concern over the effect Hungary’s new Central Bank Act could have on the independence of the National Bank of Hungary (MNB) in an opinion published on the ECB website on Thursday.

The bill on the act, recently submitted to Parliament by the government, would raise the number of members of the MNB’s rate-setting Monetary Council and add a third deputy-governor to the bank’s management.

"Against the backdrop of constant changes in the composition of the MNB’s decision-making bodies, the increase in the number of Monetary Council members, together with the possibility of increasing the number of deputy governors - without due justification for the need to amend the MNB’s institutional framework - gives rise to concerns whether this could be used to influence the decision-making process to the detriment of central bank independence," the ECB said in the opinion.

"It is of utmost importance to design an institutional structure that separates monetary policy from the influence of short-term political interests," the ECB added.

The ECB said the obligation the act would place on the central bank to forward the agenda of its board of directors to the government "should be clarified to avoid the impression that the government actively takes part in executive board decision-making".

The ECB said it learnt that the draft legislation on the central bank submitted to the government contained "substantive amendments" compared to the one submitted to the ECB.

"In such situations, the ECB expects the consulting authority to submit the amended draft legislative provision to it as soon as possible, so that the opinion can be based on the most recent text. The ECB would appreciate the Ministry for the National Economy giving due consideration to honouring its obligation to consult the ECB in the future," the ECB said in the opinion.

National Economy Minister Gyorgy Matolcsy said at a press conference on Thursday that the government had made its own proposals on the MNB and initiated a review of them by the ECB.

A bill that would establish the possibility of a merger between the central bank and financial market watchdog PSZAF is just a possibility for the future, he added.

The bill on the possible merger, introduced by committee on Wednesday, is not part of the bill on the Central Bank Act.

Government spokesman Andras Giro-Szasz said on Thursday that the government wanted to preserve the central bank's independence, adding that this aim was served by the proposed new Central Bank Act. The government consulted with all necessary partners on the bill, he said.