Hungary central bank must not raise inflation target: Prime Minister

Hungary's prime minister said on Saturday that the country must work towards lowering inflation so that it can cut interest rates, dismissing reports the government wants the central bank to raise its inflation target to allow looser monetary policy.
Premier Viktor Orban also said that a reshuffle of the central bank's Monetary Council by March, with new members due to be appointed by a parliamentary committee controlled by the ruling Fidesz party, would not lead to radical changes in central bank policy.
"Inflation indeed must be kept in check and must be lowered," Orban told a news conference. "If inflation is high we cannot lower interest rates - and we need lower interest rates." "The inflation target must not be raised and I warn everyone not to write anything like that," he said. "That is not true."
Orban's government, focused on boosting the economy, has criticised the central bank for raising interest rates over the past three months to curb inflation, saying rate rises were unnecessary and counter to government policy. The central bank's Monetary Council has been expected to become more dovish after the reshuffle by March when the mandates of four rate setters on the seven-member council expire.
The government has been criticised by the European Central Bank for trying to curb the central bank's independence by rewriting the central bank law to enable a parliamentary committee to choose rate setters. Orban however, said this would not lead to radical changes in policy.
"The composition of the Monetary Council will change," he said. "Moreover, the new (members) will be in a majority. But that does not mean that suddenly they will start doing all sorts of things." Gergely Suppan, analyst at Takarekbank, said Orban's comments were encouraging.
"On the whole these renarks are completely reassuring," said Suppan. "That the government might meddle with the central bank inflation target has been one of the key market worries. Now that uncertainty has been definitely cleared away."
Orban said any changes to monetary policy in the next two to three months would be cautious and measured and would be beneficial to the forint currency. "The most important thing from a forint exchange rate point of view is the posture of the government. Calmness, coolness, security, precaution. That's the heart of the matter. If we have that, and we have clear decisions and a timetable, then the forint cannot weaken." Suppan agreed.
"That a dovish monetary policy won't be forced on the central bank can be forint supportive for sure," Suppan said. "The forint cannot completely detach from the global market mood but it could be an outperformer in the near term." Until Saturday, the government had previously not denied reports that the new Monetary Council may seek to raise the inflation target. Markets have also been on edge over Hungary's plans to cut its deficit by shifting pension assets from the private to the public sector and by introducing one-off taxes on certain business sectors.