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UPDATE 4-Hungary c.banker vows to stay as pressure builds

Published 03/07/2011, 12:00 PM

* Fidesz nominates 2 instead of 4 cbankers, parlt confirms

* Two new cbankers: price stability, fin. stability is key

* ECB had criticised change in cbanker appointment rules

* Simor says govt had put pressure on him to resign

(Adds parlt vote)

By Gergely Szakacs and Marton Dunai

BUDAPEST, March 7 (Reuters) - Hungary's parliament filled only two of four vacant jobs at the central bank on Monday, leaving the current governor dominant on policy but under growing pressure to resign in a deepening political dispute.

Analysts had expected the ruling Fidesz party to turn the bank to a more pro-growth course, but both appointees took a cautious line on policy on Monday and they will remain in a minority on the policy board until the other posts are filled.

It was not clear why Fidesz had held off filling the rest of the 7-strong panel, although one analyst said it could be a concession to EU protests over the issue at a time when Hungary holds the bloc's rotating presidency.

European Central Bank President Jean-Claude Trichet said last week that the European Commission could sue Hungary over changes in the central bank law which are at the heart of the pressure the government has put on the bank.

Governor Andras Simor told a news conference shortly after the nominations in parliament's economic committee that a government official had asked him if he would resign ahead of the Council changes.

"A few weeks ago I had a discussion with a high-ranking government official and he asked me during our conversation whether now, that the composition of the Monetary Council will change, whether I wanted to resign," Simor said.

"I told (the official) that I will not resign, as I have made clear several times so far...to which (the official) responded whether I was aware that there will be tough battles ahead."

Simor declined to name the official and reiterated that he wanted to fill his mandate which runs until March 2013.

The Prime Minister has said publicly he would have sacked Simor if he had been able to.

But the Governor himself remains independent.

"The governor of the National Bank of Hungary cannot be forced to resign either through threats or through intimidation," Simor told the news conference on Monday.

Parliament, in which Fidesz has a two-thirds majority, rubber-stamped the bank appointments on Monday.

SHADOW BOARD

Fidesz has also put former governor Zsigmond Jarai in charge of the bank's supervisory board and both economists nominated on Tuesday -- Ferenc Gerhardt and Andrea Bartfai-Mager -- worked for Jarai at the bank before 2007.

The former governor on Friday criticised the high pay of managers and spending on public relations at the bank, adding to pressure on the current management.

"Simor's life will indeed be made more difficult with a more meddling NBH supervisory body and a more dovish MPC to handle. It will not be easy," said Peter Attard Montalto at Nomura.

There were also media reports last week that Fidesz was struggling to find candidates willing to accept the posts after it slashed central bank pay last year and Fidesz officials have signalled wages at the bank will rise later this year.

"It is unclear why four council nominees were not announced today. One theory is that the government only announced two new council members at this stage given the recent criticism by the ECB," said Koon Chow at Barclays in London.

"This would leave the council with the legal minimum 5 members and leave the government some degrees of freedom over future appointees."

Both nominees stressed the importance of fighting inflation in a parliament committee, and said the bank should support the government's policies without threatening its main objective.

The forint was unfazed by the appointments and Simor's comments, while yields on the front end rose a few points, as some traders said the new policymakers did not appear to be as dovish as some people in the market had feared.

Gerhardt said that inflation was the "number one enemy", and he believed the bank would keep rates at the current level of 6 percent for a while. He also said financial stability -- an argument for keeping rates high to keep foreign capital in Hungary -- was as important a factor as inflation.

The outgoing council has raised rates three times -- by a total of 75 basis points -- since November but held fire last month.

(Writing by Krisztina Than; editing by Patrick Graham)

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