Prime Minister Viktor Orban on Friday named Finance Minister Mihaly Varga as governor of Hungary's central bank, turning to an ally as he seeks to revive the economy ahead of 2026 elections.
In power since 2010, Mr Orban has worked to revive Hungary after last year's inflation-driven recession. The economy fell back into technical recession and the fall of the forint froze rate cuts of 6.5%, the highest rate in the European Union.
Some investors fear a majority of policymakers aligned with Orban will lead to deeper rate cuts to boost growth before the election.
Mr Varga was a member of Mr Orban's Fidesz party after Hungary's first free elections in 1990, following decades of communist rule. He served as finance minister several times, including after the COVID-19 virus pandemic, when Hungary had one of the highest budget deficits in the European Union.
This 59-year-old economist, who has avoided openly criticizing Mr. Orban's largesse, will succeed Gyorgy Matolcsy, Mr. Orban's former economic mentor, who has been increasingly critical of of the policy pursued by the Prime Minister since the 2022 elections.
Roger Mark, an analyst at fund manager Ninety One, said Mr Varga was seen as cautious and conservative, but was clearly a loyalist of Orban, whose government has repeatedly pressured the bank to that it reduces interest rates more sharply.
“If investors cause a sharp decline in the HUF (Hungarian forint), it will boost inflation, which will defeat the purpose of Orban and Fidesz,” Mark said.
Mr Varga, who will succeed Mr Matolcsy in March, said inflation should be the bank's main priority, but it should also cooperate with the government on economic policy.
“It is hard to believe that a new governor, regardless of the mandate Orban gave him, would ignore market signals out of hand and plunge the currency into crisis,” said Tatha Ghose, an economist at Commerzbank.
“We would assume that the new governor would wait for a better external market environment to seek to cut rates opportunistically.
SLOW RECOVERY
The European Commission, the EU's executive authority, expects Hungary's economy to grow by just 1.8% in 2025, after virtually no growth this year. This is the slowest pace in Central Europe, far from the 3.4% growth forecast in Hungary's 2025 budget.
Some polls show that opponent Peter Magyar's center-right Tisza party has caught up with Orban's right-wing Fidesz party, indicating that the 2026 elections could be close.
Mr. Orban seeks to revive the economy by boosting the housing sector, providing funds to small businesses, increasing wages and pensions and increasing tax benefits for families to offset part of the rise in taxes. inflation last year, which reached the highest levels in the European Union.
Marton Nagy, Mr Orban's economy minister, also expressed concern over cheap central bank loans to businesses before the inflation surge that are now coming due, saying the issue should be dealt with by the next governor.
The National Bank of Hungary left its base rate unchanged in November after a sharp fall in the forint following Donald Trump's triumph in the US elections. His plans for tariffs could hit export-dependent Central European economies, including Hungary.
The bank said its December inflation report would provide an assessment of the impact on next year's price growth, which the bank forecast in September in a range of 2.7 to 3.6 percent. This was before the latest wave of forint weakening.
Marek Drimal, a strategist at Société Générale, said the bank was likely to become a little more pro-growth under the new governor.
“But at the same time, it won't be a total upheaval of the economy and monetary policy, because they know that if they do too much, the consequences could be very harsh,” he said. he declared.
