On March 22, 2023, Decree No. 89/2023 on economic and financing measures was announced in the Hungarian Gazette. government decree, about which the Hungarian authorities did not consult the European Central Bank. The ECB decided to issue an opinion on the government decree on its own initiative.
According to the ECB’s interpretation, in the autumn of 2022 the government realized that high interest rates were being realized on the deposits of some investors with their credit institutions according to contracts according to which the investors place deposits with the credit institutions, and they place these amounts as deposits with the MNB. This allowed these investors to realize higher interest rates than were available for government-issued debt securities. With the intention of preventing this situation, the government adopted the interest rate ceiling. The Minister of Economic Development announced that the interest rate ceiling is necessary in order to ensure the smooth operation of lending and the distribution of government securities and the redirection of funds to the economy by ensuring that the interest paid by the MNB on deposits will not be available to investors.
In 2021 and 2022, the MNB rarely issued discount bonds. Following the introduction of the interest rate ceiling, the MNB significantly changed its discount bond program by announcing regular, weekly tenders. According to the ECB’s interpretation, this encouraged credit institutions to buy discount bonds directly from the MNB and sell these bonds to institutional investors subject to the interest rate ceiling. Following the change in the MNB’s discount bond program, the amount accepted under the program increased significantly. According to the ECB’s interpretation, the increased reliance on the discount bond program was aimed, among other things, at addressing the apparent weakening of the transmission mechanism of monetary policy, which was triggered by the interest rate ceiling applied to demand deposits by government decree.
Article 130 of the Treaty states that in the exercise of the powers conferred on them by the Treaties and the European System of Central Banks and the Statute of the European Central Bank, and in the performance of such tasks and obligations neither the national central banks, including the MNB, nor any member of their decision-making bodies may request or accept instructions from the EU institutions, bodies or offices, the governments of the member states or any other body; and the EU institutions, bodies and offices, as well as the governments of the member states undertake to respect this principle and not to try to influence the members of the decision-making bodies of the central banks in the performance of their duties.
Central bank independence can be served by providing central banks with all the necessary resources and tools to conduct effective monetary policy and achieve the objective of price stability, independent of any other authority, reflecting the general view that the primary objective of price stability is best served by a fully it is served by an independent institution – read the announcement.
The ECB interprets the MNB’s discount bond program as a monetary policy instrument introduced by the MNB as part of the overall definition of the MNB’s monetary policy and as part of its implementation. Nevertheless, the government decree, in addition to extending the interest rate ceiling until June 30, 2023, prohibits certain organizations from buying debt securities issued by the central bank of a member state, denominated in the Hungarian forint currency, until June 30, 2023. The government decree including the interest rate ceiling conflicts with the independence of the MNBas it prevents the MNB from being able to independently choose the resources and tools necessary for the conduct of an effective monetary policy and the independent implementation of the objective of price stability.
The government decree thus violates the MNB’s independence according to Article 130 of the Treaty.
– says the ECB in his statement.
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