Orban ally named as head of Hungary's central bank

Hungary's Prime Minister Viktor Orban on Friday named a close ally, Economy Minister Gyorgy Matolcsy, as the new head of the country's central bank (MNB).

"The new president of the central bank will be heard in parliament this afternoon: it is Gyorgy Matolcsy," Orban announced in his weekly interview on state MR1 radio.

The 57-year-old economy minister will replace Andras Simor, whose mandate ends on Saturday and whose six-year-term was marked by frequent clashes with Orban's government over state interference in monetary policy and the bank's independence.

Minister without portfolio Mihaly Varga, who has been leading Hungary's negotiations with the International Monetary Fund over a much-needed 15-billion-euro credit line ($19-billion), will meanwhile take over as economy minister, Orban said.

Matolcsy's nomination was widely forecast by analysts and financial markets, who have described the appointment as a "bad choice".

Investors worry that the new bank head will focus too much on getting Hungary out of recession and not enough on battling inflation.

Matolcsy is seen as something of an economic maverick behind many of the government's more "unorthodox" policies, like nationalising private pension funds and imposing "crisis taxes" on certain sectors, which have drawn fire at home and abroad.

His nomination will be interpreted by the markets as a takeover of the bank by Orban, analysts William Jackson and Neil Shearing at Capital Economics in London said.

In parliament on Thursday, Matolcsy stressed however that the primary objective of the bank is to "achieve and maintain price stability".

He also said the MNB's foreign currency reserves would not be used "either for defending the economy, or development purposes".

Rumours that Matolcsy would be named as central bank head sent Hungary's currency, the forint, falling in early February.

On Friday morning, it fell again to 296.30 forints to the euro from 295.40 forints before Orban's statement. It recovered to 295.60 by 0800 GMT.