Hungarian Prime Minister Viktor Orban has escalated a standoff with the country’s central bank with a decree constraining its ability to tighten monetary policy, Bloomberg reports. The restriction bars big local investors and retail banks from putting cash in central bank credit facilities carrying 18% interest.
The move also extended the duration of a ceiling on interest that commercial banks can pay on deposits until the end of June, effectively loosening monetary conditions amid a recession and despite persistently high inflation.
The central bank has so far resisted pressure to cut its 18% main interest rate citing a continued focus on reducing inflation, which is over 25%, and fluctuations in the forint’s value. While the currency has remained supported, given its attractiveness for carry trades, the burgeoning conflict between Orban and central bank governor Gyorgy Matolcsy over monetary policy is creating unwelcome uncertainty for investors.