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UPDATE 3-Hungary govt seeks to reassure mkts with cbank nominees

Published 03/21/2011, 09:36 AM

* Parliament elects the two new rate setters

* Nominations ease some fears of govt influence -- for now

(Removes stray word from first paragraph, adds parlt vote)

By Gergely Szakacs and Sandor Peto

BUDAPEST, March 21 (Reuters) - Hungary's parliament elected two new central bank policymakers on Monday who said they would fight inflation, in a move which may ease market concerns that the government would seek hasty rate cuts.

Ruling Fidesz has nominated four new interest rate-setters this month, which could put central bank governor Andras Simor -- whom the government has criticised repeatedly over the last year -- and his two deputies in a minority on the seven-member rate-setting council.

But most analysts said there was unlikely to be a marked policy shift on the council, which would continue to act cautiously and leave rates on hold for a while, while watching the forint's exchange rate.

The bank had raised rates by 75 basis points to 6 percent from November to January before pausing last month.

Nevertheless, some analysts said rate cuts could come later in the year, which would support the government's pro-growth policies focusing on income tax cuts and job creation.

Markets will closely monitor the new central bankers' comments and voting patterns in coming months to gauge whether the centre-right government is seeking to influence monetary policy after giving itself the right to nominate all four new rate setters, instead of having two picked by the bank itself.

Anders Svendsen at Nordea said the new rate setters should be given the benefit of the doubt and not labelled doves before their first policy meeting, though some scepticism was understandable.

"There is not much point in the government taking a lot of heat to be able to appoint two more MPC members and then appoint members that are not to some extent doves," Svendsen said.

"Therefore, we have unchanged interest rates in our forecast for the coming quarters, but would not be surprised to see an interest rate cut or two."

Fidesz' new nominations, which include two rate setters elected earlier this month, will restore the seven-strong council to its full size by the April rate meeting.

Gyorgy Kocziszky, one of the two new rate setters, will only be appointed after the next meeting of the bank on March 28.

"I'm absolutely committed regarding inflation, and I will represent that view in the Monetary Council," economist Janos Cinkotai, the other nominee, told a parliament committee.

But he said strong caution was warranted as the central bank should not take drastic steps in reaction to one-off events that impact inflation and to external shocks.

Kocziszky stressed the importance of predictability and said he would focus on growth and sustainability as well.

Local bond markets and the forint showed little reaction to their comments.

ECB CRITICISM

Parliament elected the two new members with votes from Fidesz and the far-right Jobbik party.

The nominations were made based on government-sponsored legal changes enacted earlier this year that were criticised by the European Central Bank (ECB) as they stripped Simor of the right to nominate two of the four policy makers.

"Given the tense government-central bank relationship there were some concerns that the monetary council will be filled up with members delivering a political mission of cutting interest rates. This is not the case," said Zoltan Torok at Raiffeisen.

But Peter Attard Montalto at Nomura in London said rate cuts could be in the pipeline later in the year.

"Cinkotai seems clearly to be of the camp that doesn't believe headline external shocks lead to core (inflation) pressures," he said.

"Cinkotai can think rates are too high for a one-off external shock in his mind, whilst Kocziszky can be looking at (economic) growth been too sluggish."

"We retain our view that these members have been put in place to engineer a rate cut later in year -- even if individual members are independent of the government," he added. (Writing by Krisztina Than; Editing by Ron Askew)

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