Hungary central bank act provisions do not go far enough, says ECB

The European Central Bank on Friday said that provisions to Hungary's law on the National Bank of Hungary "do not go far enough" to guarantee the central bank's independence.

The ECB said it welcomes the fact that Hungarian authorities have taken into account the ECB's earlier observations on a part of the law concerning the dismissal of members of the rate-setting Monetary Council, but it added that the amended draft law "still fails to address a number of previously highlighted concerns as regards the NBH's independence".

"The ECB maintains its view that the provisions of the current NBH Law do not go far enough to re-establish central bank independence, notwithstanding this move in the right direction, as provided by the amended draft law, notwithstanding this move in the right direction, as provided by the amended draft law." it added.

Legislation ensuring the independence of the NBH was a key point of contention at talks preparing for negotiations on financial assistance Hungary is seeking from the International Monetary Fund and the European Union. Late in April, the European Commission said Hungary taken "sufficient action and commitments" with regard to an infringement procedure on the NBH to start talks on the precautionary financial assistance. The IMF said afterward that it welcomed the progress Hungary had made in talks with the EC and was ready to start negotiations on the assistance "as soon as steps to ensure the independence of the National Bank of Hungary are taken".

In its opinion issued on Thursday, the ECB noted it had criticised the frequency of amendments to the central bank act and emphasised its "preference" to address the remaining open issues on the NBH's independence as part of the present parliamentary procedure in order to avoid making further amendments at a later stage.

The ECB said concerns on the composition of the NBH's decision-making bodies "are still valid", particularly variation in the number of Monetary Council members and the appointment of a third deputy governor. "This situation gives rise to concerns as to whether these provisions could be used to influence decision-making processes, to the detriment of central bank independence," it added.

Giving the Monetary Council a mandate on policy implementation and the day-to-day operation of the NBH "also raises concerns" as it allows the body responsibility for implementing policies, as well as setting them, and oversight of its own actions, the ECB said.

The ECB said it remains concerned about frequent changes to the remuneration of the members of the NBH's decision-making bodies. "Such changes have been made without the MNB's prior consultation and with disregard for its views," it added.