Bloomberg the Company & Products

Bloomberg Anywhere Login


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Orban Attack on Simor Risks Turbulence, Investors Say

May 20 (Bloomberg) -- Hungary’s Prime Minister-designate Viktor Orban sparked investor concerns about the independence of the central bank by signaling he may oust bank President Andras Simor, who has defied the new ruling party’s calls to resign.

Orban, who has yet to take office, vowed yesterday to “solve this situation” shortly after forming a government. His Fidesz party won 68 percent of the seats in parliament in April elections, enough to change the constitution.

The incoming premier has made “a catastrophic move,” said Daniel Bebesy, who helps manage $1.5 billion, mostly in Hungarian government bonds, at Budapest Investment Management. “When there is such market turbulence, it’s problematic to say the least to try to oust the central bank governor, which will trigger questions about the bank’s independence and cause the forint to weaken.”

Fidesz has demanded that Simor, his two deputies and the four outside members of the rate-setting Monetary Council resign for “policy mistakes.” Orban has also criticized him for having held investments in Cyprus.

The central bank this week urged the Fidesz government to avoid loosening fiscal policy. Simor has said it is his “constitutional duty” to serve out his term, which expires in 2013, and has offered to work with the next Cabinet.

‘No Basis’

“You need a basis of cooperation and there is no basis with the current central bank,” Orban said yesterday. “We won’t show brutal force, but we have a two-thirds majority and this situation needs to be solved.”

Orban and Simor should meet after the new government takes office next week, Deputy Prime Minister-designate Tibor Navracsics said today, according to MTI news service. Simor is “awaiting” Orban’s proposal for a meeting, MTI said, citing the central bank’s press department.

The forint weakened to 282.72 per euro at 4:31 p.m. in Budapest today after falling as much as 1.5 percent yesterday. The currency has weakened 6.4 percent in the past month, the second-worst performance among the 25 emerging-market currencies tracked by Bloomberg, after the Polish zloty.

‘Most Explicit’

“Orban’s latest criticism of the central bank is the most explicit to date,” said Istvan Horvath, who helps manage $3.3 billion at the Budapest investment management unit of KBC Groep NV. “If the central bank leadership is forced out, it won’t be seen as a market-friendly move. It would weaken demand for Hungarian assets, raise the risk premium and hurt the currency, stocks and bonds.”

Hungary was the first European Union member to obtain an International Monetary Fund-led bailout to avert a default during the credit crisis. The central bank has cut the benchmark interest rate to 5.25 percent, the lowest since the fall of communism in 1990, from a record 11.5 percent in October 2008.

Fidesz criticized the central bank for being slow to cut rates. It also blamed policy makers for failing to stop the spread of foreign-currency based loans, one of the reasons cited by investors when they sold Hungarian assets in 2008, pushing the country to the brink of default and forcing the government to take the emergency loan.

The central bank has tools including rate cuts or the purchase of corporate bonds on the secondary market to provide monetary stimulus and should be “braver” in using these, Economy and Finance Minister-designate Gyorgy Matolcsy said in an interview with HVG, published today.

‘Rather Perplexing’

The criticism is “rather perplexing for investors at the end of the day because the markets see what Andras Simor has done very positively,” said Peter Attard Montalto, an emerging-markets economist at Nomura International Plc in London. “It’s quite confusing where this effort to dethrone him is going to end up. My worry is, basically, given they have no easy mechanism, that they’ll do it by battering him with rhetoric.”

Simor was appointed for a six-year term in March 2007 by Socialist Prime Minister Ferenc Gyurcsany. The Socialists were ousted in elections in April after eight years in power. If Simor were to resign, he would be the third central bank chief since the end of communism to leave before his term ends.

Gyorgy Suranyi lost his job after a year in 1991, when the country’s first freely elected government changed the central bank law to give the prime minister the power to replace him. He served a full term from 1995 to 2001. Orban, who became premier in 1998, clashed with Suranyi over the relaxation of currency controls and losses at the central bank’s Austrian unit.

Peter Akos Bod, central bank head between 1991 and 1994, resigned midway through his term, citing “political conflicts” over the bank’s independence with the Socialist government that had ousted the administration which installed him.

“The central bank is an independent institution and part of this independence is that policy makers serve out their terms,” policy maker Peter Bihari said in an interview today. “The central bank leadership can’t be subordinated to the desire or interests of politicians.”

To contact the reporter on this story: Zoltan Simon in Budapest at

To contact the editor responsible for this story: Willy Morris at

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.