Hungarian Prime Minister Viktor Orban said he won’t shuffle his Cabinet, casting doubt over Economy Minister Gyorgy Matolcsy’s chances of becoming the next central bank president.
“I don’t know of a Cabinet shuffle,” Orban said in an MR1 state radio interview today. “A Cabinet shuffle is when we swap ministers and I have no such plans, let’s make that clear.”
Matolcsy, who spearheaded the government’s self-described unorthodox policies such as pension fund nationalization and industry tax increases, was the frontrunner to succeed Magyar Nemzeti Bank President Andras Simor, Nomura Holdings Plc and Standard Bank Group Ltd. said in reports Feb. 12 after meeting with officials in Budapest. Simor’s six-year term expires on March 3. Orban has said he will name a successor the day before the current MNB chief’s term expires.
“The prime minister’s statement appears to be an obstacle in the way of Matolcsy becoming central bank president and if that’s true, that would upset the market consensus,” Gabor Orban, who helps manage $2.5 billion at Aegon Fund Management in Budapest and is not related to the premier, said by phone. “His words still leave room for interpretation.”
The forint dropped 0.2 percent against the euro to 292.4 by 8:46 a.m. in Budapest. Media including the news websites Index and hvg.hu have reported that Matolcsy is the favorite to take over the central bank next month.
Matolcsy, who cut the budget deficit below 3 percent of gross domestic product at the cost of driving the economy into its deepest recession in three years, urged the new central bank leadership to “bravely” use “unorthodox” monetary- policy tools to boost growth. The comments, made Dec. 22, sparked a weakening of the forint and a rise in bond yields.
The minister then “essentially backtracked” on earlier comments to endear himself to investors, Royal Bank of Scotland Plc said on Feb. 1, after Matolcsy told the Wall Street Journal in a Jan. 30 interview that the central bank should pursue a “conservative” policy course, avoid “surprises,” and “absolutely not” engage in budget financing.
Orban today defended Matolcsy’s record of reducing the debt level and the budget deficit. He added that he expects the Economy Ministry “to put in place programs that help boost economic growth,” which is the Cabinet’s priority for this year.
Gross domestic product shrank 2.7 percent in October-December from a year ago, contracting for a fourth consecutive quarter, the statistics office in Budapest said yesterday citing preliminary data. The median estimate of 18 economists in a Bloomberg survey was for a 1.9 percent drop.
Orban’s statement today “shows that the prime minister is trying to wait until the very end” before announcing his pick and “is keeping the markets in uncertainty” until then, Balint Torok, a Budapest-based analyst at Buda-Cash Brokerhaz Zrt, said in an e-mailed note today.
Minister for International Aid Talks Mihaly Varga, who said his post may be eliminated because discussions with the International Monetary Fund are ending, yesterday ruled himself out for the central bank post. Varga was considered a “moderate candidate” by investors, Commerzbank AG currency strategist Carolin Hecht said in an e-mail today.
“As a result, the chances for the forint-horror candidate Gyorgy Matolcsy have risen again,” Frankfurt-based Hecht said. “As a result of the uncertainty surrounding the leadership of the central bank, risks in euro-forint rate are concentrated at the upper end again.”