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BNP Says Investor Anxiety Over MNB Chief Choice Overblown

January 23, 2013

Investor anxiety that the Hungarian government’s self-described unorthodox economic policies will spread to the central bank with a new Magyar Nemzeti Bank chief named this year are unjustified, BNP Paribas SA (BNP) said.

Market conditions don’t warrant unconventional policies from the new central bank president, according to Bartosz Pawlowski, BNP’s London-based head of emerging-markets strategy. Quantitative easing in the form of the central bank buying government bonds “is hardly necessary” at current yields, he said.

“I’m not sure why all the fuss,” Pawlowski said by phone today. “What we know is that whoever takes over would be on good terms with the government and whoever takes over will probably continue with interest-rate cuts.”

Prime Minister Viktor Orban is expected to name a replacement next month for MNB President Andras Simor, whose six-year term ends March 3. The successor should “bravely use unorthodox tools” to provide monetary stimulus, including measures used by the European Central Bank and the U.S. Federal Reserve, Economy Minister Gyorgy Matolcsy, Simor’s most-likely successor according to the Index news website, said last month.

The central cut the main rate to 5.75 percent on Dec. 18, still the European Union’s highest after five quarter-point reductions.

The government wants to stimulate an economy going through its second recession in four years, with elections scheduled for next year. Investors expect the central bank to cut the two-week deposit rate by a full percentage point within a year, forward- rate agreements indicate.

Orban’s Policies

Orban has used what his government described as unorthodox measures to close budget holes and avoid cuts in European Union funding, contributing to the economic slump. They included the effective nationalization of private-pension fund assets, imposing retroactive industry taxes, levying the highest bank tax in Europe and curtailing the power of courts.

The MNB may try to purchase corporate bonds, according to Pawlowski. The yield on the government bond maturing in 2023 dropped to 6.42 percent today, compared with 9.2 percent one year ago. BNP, which has been “bullish” on Hungary for the past year, recommends buying 2015 bonds.

Hungary will start investor meetings in the U.S. and Europe on Jan. 28 as the government prepares to end a 20-month absence on international debt markets, a person familiar with the plans, who declined to be named because the information isn’t public, said yesterday.

The government hired BNP, Citigroup Inc. (C:US), Deutsche Bank AG and Goldman Sachs Inc. (GS:US) to arrange the meetings.

Candidate List

The 10-year yield rose from 6 percent on Jan. 3 as strategists including those at Citigroup and Bank of America (BAC:US) Corp. warned in the past month of weakening local assets should Matolcsy be tapped for the top central bank job.

Istvan Torocskei, the head of the Debt Management Agency; Gyula Pleschinger, Torocskei’s predecessor and currently Matolcsy’s state secretary; Mihaly Varga, a former finance minister and the minister in charge of international aid talks; as well as former central bank Vice President Henrik Auth are among the candidates to lead the MNB, the Budapest-based newspaper Napi Gazdasag reported this week.

Orban may announce his decision at a ruling-party retreat between Feb. 5 and 7, Index news website reported Jan. 17, without citing anyone.

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

To contact the editor responsible for this story: Balazs Penz at

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