April 1, 2019 / 1:00 PM / 6 months ago

ECB concerned by Hungary central bank's control of stock exchange

BUDAPEST, April 1 (Reuters) - The European Central Bank will continue to monitor the National Bank of Hungary’s ownership of the Budapest Stock Exchange as its majority stake in the bourse raises possible monetary financing concerns, the ECB said on Monday.

The Hungarian central bank’s late-2015 acquisition of a majority stake in the exchange from two Austrian companies was part of an unconventional policy drive engineered by Governor Gyorgy Matolcsy, a close ally of Prime Minister Viktor Orban.

Under Matolcsy, the bank slashed borrowing costs to record lows, flooded the economy with cheap credit and launched other schemes, such as a distressed loans vehicle, to bolster local financial markets.

But Hungary’s efforts have raised concerns at the ECB that some of the measures, including an artwork acquisition programme the central bank ended last year, may not be compatible with its inflation-fighting primary mandate.

“Following up on the concerns raised in the ECB’s Annual Reports as of 2014, the ECB has continued to monitor several programmes launched by the Magyar Nemzeti Bank in 2014 and 2015,” the ECB said in its 2018 Annual Report.

“The ECB will continue monitoring the involvement of the Magyar Nemzeti Bank in the Budapest Stock Exchange as the purchase of the majority ownership of the Budapest Stock Exchange by the Magyar Nemzeti Bank in November 2015 may still be seen as giving rise to monetary financing concerns,” it said.

Matolcsy was economy minister after Orban swept to power in 2010 and has repeatedly stressed that, inflation-targeting aside, he strongly supports the government’s economic policies.

The central bank has said its aim in acquiring the stock exchange was to boost turnover and the number of listings, which had fallen behind regional peers at the time.

Despite some new incentives and smaller listings, however, the bourse remains dominated by four blue-chip companies — OTP Bank, energy group MOL, Magyar Telekom and drug maker Richter — which accounted for about 80 percent of turnover in March.

The ECB, which monitors all 28 EU central banks to ensure compliance with the bloc’s laws, has long expressed concerns that its Hungarian counterpart may be in breach of rules prohibiting central banks from funding government activity.

It has little power over non-euro zone central banks, however, especially if — like Hungary — they are in no hurry to join the single currency. (Reporting by Balazs Koranyi and Gergely Szakacs; Editing by Catherine Evans)

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