* More pressure may erode confidence in cbank, upset markets
* Attacks not expected to influence rate policy
By Sandor Peto
BUDAPEST, July 3 (Reuters) - Political attacks on Hungary's central bank chief Andras Simor will not change the course of monetary policy but if pressure on him grows, it could harm investor confidence in the bank and upset markets.
Analysts said the attacks were mostly targeted at Governor Andras Simor personally and will not influence rate policy set by the 9-member Monetary Council which has kept rates on hold at 9.5 percent for the fifth month running in June.
Simor has been under fire in the past few weeks by both ruling Socialist and opposition Fidesz politicians over some of his personal investments.
If Simor decides to step down under political pressure, uncertainty over his successor could damage confidence in Hungarian assets and upset markets at a time when the country is trying to rebuild investors' trust in its currency and policies.
The bank, which has been so far cautious and held rates in order to maintain stability on financial markets, is expected to cut rates in the coming months to help the economy which is seen contracting by 6.7 percent this year.
The forint
But political interference into central bank matters may scare off investors who have been lured back recently by the country's high yields and more credible government policies.
"If monetary policy cannot stay independent and overcome actual political desires, that usually has a consequence materializing in higher risk premiums," said Janos Samu, analyst at Concorde Securities.
"If Simor resigns in the end, that can have a detrimental impact on market confidence."
Rate setter Peter Bihari, who has called for a rate cut, said the attacks, if continued, may erode confidence in the bank and the effectiveness of monetary policy.
"In this very unfortunate situation... the only reasonable behaviour from the central bank is that it stays on its own path and acts according to its own professional norms," he told Reuters earlier this week.[ID:nLU141043]
Analysts said Simor was unlikely to resign over recent attacks but he may consider quitting if they intensify and he sees a risk to the bank's credibility.
UNDER FIRE
Simor came under scrutiny last month when leading local newspapers reported that his disclosure of personal assets showed a big drop in his investments in 2007.
The bank said Simor put his savings into Cypriot-registered Trevisol Management Services Ltd., which he fully owns.
Simor told parliament he would sell Trevisol and transfer the funds home, adding he "understood the opinions of those who argue that public figures, including the central bank governor, should be subject to stricter rules of conduct."
Opposition party Fidesz and the ruling Socialist parliament group whip Jozsef Tobias have called for Simor to step down.
Prime Minister Gordon Bajnai has strongly defended Simor and analysts said Simor would stay, but continuing and intensive attacks could make him consider resigning.
"He will not quit now, because by doing that he would underpin that he's not flawless ... But if the attacks become permanent and endanger the credibility of the bank, he may step down," said an analyst in Budapest who wished to remain unnamed.
"It's visible that it's hard for him to suffer the heat."
It is very difficult to remove the head of the National Bank based on current laws if the governor does not resign.
"He can be pestered by politicians, they can call for him to resign, but cannot force him to do that," said constitution expert lawyer Gyorgy Kollath.
Even though both Fidesz and Socialist politicians have called for rate cuts, most analysts think the attacks would not alter monetary policy.
The bank is expected to cut its base rate in one or two months anyway, joining monetary easing in nearby Poland and Romania, if an improvement in global appetite for emerging assets seen in past months is not reversed, analysts said.
"The attacks are directed against a person rather than against monetary policy," said Zoltan Torok of Raiffeisen. "I think everything will go on its own way (in monetary policy), regardless the attacks."
"I don't think that (the bank) can be pushed into irrational moves," said David Nemeth of ING.
(Reporting by Sandor Peto; Editing by Toby Chopra)