ECB Says Hungary Ready to Respect Central Bank Independence

Hungary’s proposed amendments to a disputed central bank law address main concerns about the independence of monetary policy, the European Central Bank said.

“The draft law addresses the most important remaining concerns regarding the Magyar Nemzeti Bank’s independence,” the Frankfurt-based institution said on its website. The draft amendments and other government commitments indicate that the Cabinet is “now ready to respect the MNB’s institutional independence,” according to the document.

Hungary is seeking to end a seven-month deadlock to start aid negotiations with the International Monetary Fund and the European Union after talks collapsed over the central bank law. The IMF agreed this week to start official negotiations once legislators approve the amendments.

Changes to the jurisdiction of the rate-setting Monetary Council “fully resolve” the ECB’s concerns, according to the document. The regulations of the appointment of new rate-setters and a third vice president, along with the government’s commitment not to increase the size of the council during the present governor’s term, address “immediate concerns,” the ECB said, adding that further checks and balances in this area “would be advisable.”

Prime Minister Viktor Orban requested the aid in November as the country’s credit grade was cut to junk and the forint fell to a record against the euro. Preliminary talks broke down in December after Hungary passed a law that the IMF and the European Union said may curb central bank independence.

Forint, CDS

The forint advanced 0.7 percent to 288.22 per euro by 12:25 p.m. in Budapest, boosting this month’s gain to 4.4 percent, the second-best performance in the world after the Mexican Peso. The cost of insuring against non-payment on Hungary’s debt with credit-default swaps for five years fell to 513 basis points, the lowest since May 9, according to data compiled by Bloomberg.

The ECB struck down a previous set of amendments submitted to the law last month, saying they were “insufficient” to restore monetary policy autonomy. The government revoked those changes and presented a new draft bill on June 21.

Present proposals on the dismissal on rate-setters are “satisfactory,” according to the document, while the changes in central bank salaries, the replacement of the governor upon the expiration of the term of office and the oath taken by the governor and deputy governors remain a concern.

The amendments will be approved by Parliament on July 12 at the latest, Mihaly Varga, the country’s chief bailout negotiator said on June 27.

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