Hungarian central bank deputy governor Nagy unexpectedly resigns

Hungarian central bank deputy governor Nagy unexpectedly resigns

© Reuters. FILE PHOTO: A Hungarian central bank Deputy Governor Marton Nagy speaks in his office in Budapest

By Gergely Szakacs

BUDAPEST (Reuters) – Hungarian central bank Deputy Governor Marton Nagy unexpectedly resigned on Thursday, raising questions about the future direction of the bank’s monetary policy.

The National Bank of Hungary (NBH) said Nagy, who had joined the bank in 2002 and whose six-year term on the rate-setting Monetary Council had been due to expire in September 2021, resigned to take up another important leadership position.

The central bank did not specify the position he was taking and a spokesman for the bank declined further comment. Nagy was not immediately reachable for comment.

The departure of Nagy, the central bank’s most active policymaker at investor meetings, conferences and press briefings, leaves a void in the bank’s policy making and inflation-fighting credentials.

The bank is led by Governor Gyorgy Matolcsy, a strong ally of Hungarian Prime Minister Viktor Orban who holds the power to nominate the top brass at the central bank, including its deputy governors.

The rate-setting Monetary Council is made up entirely of members appointed by parliament, where Orban’s Fidesz party holds a two-thirds majority. The panel has strongly backed Orban’s pro-growth agenda since Matolcsy took over in 2013.

The forint () showed no immediate reaction to the resignation, hovering around the 350 per euro mark. The currency recovered from record lows in February when Nagy called for tighter policy after inflation overshot the bank’s target range.

He will be temporarily replaced by Barnabas Virag, the central bank’s managing director in charge of monetary policy and economic analysis. Deputy Governor Mihaly Patai will take charge of the bank’s corporate lending programmes.

Tatha Ghose, an economist at Commerzbank (DE:), said Nagy’s credibility had helped shore up the forint at a time of rising inflation.

Financial markets will be watching to see if his successor can do the same if inflation starts rising again after the effects of the coronavirus pandemic start to fade.

“When the time comes and core inflation is going to rise and you need tighter policy at that time the market will watch closely if the new deputy governor has enough authority to argue for tighter policy,” Ghose said.

Nagy had played an instrumental part in the central bank’s unconventional monetary easing campaign, its lending schemes to provide companies in Hungary with cheap loans, as well as a corporate bond programme to boost the local capital market.

He had also been a vocal advocate of bank sector consolidation, repeatedly saying there were too many large, universal banks in Hungary for the size of its market.

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