April 9, 2018 / 1:04 PM / a year ago

ECB keeps Hungary central bank on watch over financing

FRANKFURT, April 9 (Reuters) - Hungary’s central bank may still run afoul of European rules on government financing and requires close monitoring, the European Central Bank said on Monday, repeating its long-standing concern about the activities of its Hungarian counterpart.

Hungary’s central bank has taken several steps last year to ensure it is not illegally funding budget activities but not all concerns have been fully alleviated, the ECB said in its annual report.

While the ECB has little power over non-euro zone central banks, such disputes are rare with EU members aspiring to join the single currency and could potentially slow Hungary’s efforts in meeting euro zone entry criteria, even if Budapest has said it was not in a hurry to join.

Run by a close ally of Prime Minister Viktor Orban, Hungary’s central bank has been on watch since 2014 over concerns that several of its programmes may be violating EU rules prohibiting central banks to fund government activity.

“In view of their multitude, scope and size, the ECB will continue to closely monitor compliance of these operations with the prohibition of monetary financing,” the ECB said.

“Moreover, the ECB will continue monitoring the involvement of the National Bank of Hungary in the Budapest Stock Exchange as the purchase of the majority ownership ... in November 2015 may still be seen as giving rise to monetary financing concerns,” the ECB added.

The ECB’s annual report, which covers a wide range of issues not just Hungary, was released the day after Sunday’s Hungarian election in which Orban won a third sweeping victory. (Reporting by Balazs Koranyi Editing by Alison Williams)

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