The decision to nominate Economy Minister Gyorgy Matolcsy to become Hungary’s new central bank governor is another blow to the Bank’s independence and is likely to result in further interest rate cuts and possibly unconventional policies to boost lending. However, the heavy burden of FX debt throughout the economy blunts the effectiveness of monetary loosening. In fact, by appointing a party loyalist as governor and undermining the central bank’s credibility, looser policy could actually make things worse if it causes a sharp fall in the forint.
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