Orban ally Varga pledges independent monetary policy course amid rate cut worries
Central bank governor nominee Varga affirms primary mandate
Will be committed to 3% inflation target, Varga says
Forint stability key for price stability
Investors concerned about premature rate easing
Will find "appropriate ways" of consulting with government
Adds more comments, details, market reaction
By Gergely Szakacs
BUDAPEST, Dec 16 (Reuters) -Hungary needs sustained low inflation to support the economy, Prime Minister Viktor Orban's nominee for central bank governor said on Monday, looking to allay worries that the bank might bow to government pressure for rate cuts amid a weak recovery.
Orban last month nominated Mihaly Varga, currently Hungary's finance minister, to be governor of the National Bank of Hungary (NBH), turning to a political ally as he seeks to revive the country's struggling economy before a 2026 election.
Varga was a lawmaker in Orban's Fidesz party after Hungary's first free elections in 1990 following decades of communist rule, and has served multiple terms as finance minister, including the period after the COVID-19 pandemic, when Hungary ran one of the highest budget deficits in the EU.
"Naturally, the National Bank of Hungary is not an island in Hungarian economic policy," Varga told reporters on the sidelines of a parliamentary confirmation hearing. "It is a very important member in the formulation of economic policy.
"Therefore, we need to find the correct and appropriate forms of how the bank can consult with the government on various questions," he said.
Varga said Hungarian and European laws provided sufficient safeguards for the central bank's independence and defended his track record, saying he had not shied away from conflict during decades of working with Orban.
At 0957 GMT, the forint EURHUF= traded at 408.44 versus the euro, unfazed by Varga's comments, but still sharply weaker than levels before the bank's latest rate cut on Sept. 24.
Investors are concerned that the leadership changes could lead to faster rate cuts in Hungary, although Fitch Ratings this month cited improved coherence between fiscal and monetary policy. Hungary has the joint highest borrowing costs in the European Union, along with Romania.
"Fitch expects the NBH, under the recently nominated Finance Minister Varga, to resume prudent monetary easing after 1Q25, given domestic price dynamics and elevated external uncertainty, with a key rate forecast at 5.25% at end-2025," it said.
Varga, who is due to take over from Gyorgy Matolcsy in March, said the stability of financial markets and the Hungarian forint, which has fallen nearly 7% versus the euro this year, were key for price stability.
"The primary aim of the central bank is to achieve and maintain price stability," Varga said, affirming the bank's 3% medium-term inflation target.
"This clarity is vital for anchoring the expectations of consumers, businesses, and financial market participants."
The NBH is expected to leave its base rate steady at 6.5% on Tuesday after falls in the forint following Donald Trump's re-election. Trump's tariff plans could hit export-reliant countries in central Europe.
The bank's nine-member Monetary Council is headed for a shake-up next year, with the mandates of one rate-setter and two deputy governors alsoexpiring between March and October.
Varga said he would bring two of his key lieutenants, Finance Ministry State Secretary Peter Beno Banai and government debt agency AKK Chief Executive Zoltan Kurali, with him to the bank, but declined comment on their roles.
Writing by Gergely Szakacs
Additional reporting by Krisztina Than,
Editing by Gareth Jones and Ed Osmond
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