The National Bank of Hungary’s (NBH) independence has been violated by the government of Hungary through a directive that limits access to the bank’s discount bill and by extending a limit on big commercial bank deposits until the end of June, the European Central Bank stated on Wednesday.
To reduce “unjust” income generated by using central bank facilities, Hungary’s government last month extended a cap on big commercial bank deposits until the end of June and set restrictions on the transfer of central bank discount bills.
A government spokesman did not immediately respond to an emailed request for comment. An NBH spokesman declined comment.
“The decree, including the interest rate cap, interferes with the independence of the (NBH), since it impedes the (NBH) from independently choosing the necessary means and instruments to conduct an efficient monetary policy,” the ECB said.
“Therefore, the decree infringes the independence of the (NBH) under Article 130 of the Treaty.”
Prime Minister Viktor Orban’s government announced a cap on large commercial bank deposits after the NBH launched a quick deposit facility with an 18% interest rate last October to stem falls in the forint.
The measure, under which commercial banks in Hungary cannot pay an interest rate higher than the three-month discount bill yield on deposits by certain large institutional and private investors, had been due to expire at the end of March but was extended until the end of June.
The ECB said the government’s moves have curbed the NBH’s ability to perform its monetary policy.
The NBH, which on Tuesday paved the way for a cut in its main policy rate over the coming months, has also come under pressure from Orban’s government to reduce borrowing costs.