(Bloomberg) -- Hungarian Prime Minister Viktor Orban’s government is planning a “significant attack” against central bank independence with a proposed modification of the law regulating the institution, Governor Gyorgy Matolcsy said.

The remarks by the former Orban ally marked the intensification of a years-long public feud between the cabinet and the central bank. It threatens to deal another economic blow to a country that’s been tested by a recession and the highest inflation and borrowing costs in the European Union over the past year.

“The government’s plan to amend the central bank law would constitute a significant attack against the MNB’s independence and autonomy,” Matolcsy said at a Budapest Stock Exchange event. He also railed against Orban’s economic policy to boost consumption via stimulus, saying it was “doomed to fail.”

The government responded saying it respects central bank independence and only aims to boost transparency and prudent financial management in areas unrelated to monetary policy, according to a Facebook post by Finance Minister Mihaly Varga.

Forint Swings

The forint gained against the euro on Thursday after briefly dropping to close to an 11-month low on Matolcsy’s remarks.

The planned legislation seeks to broaden the purview of the central bank’s supervisory board, which includes government appointees. It would allow the board to look into investments, including controversial foundations the central bank set up and which the European Central Bank has also scrutinized in the past. 

The foundations, via a private equity vehicle, have done deals with frequent business partners of both Matolcsy’s and Orban’s families, through a controlling stake in Warsaw-listed property developer Globe Trade Centre SA.

The ECB, in an opinion published on Monday, said that the central bank board’s new competences would be “limited” and wouldn’t affect monetary policy, though it suggested revisions to the draft to make that clear and to fully respect central bank independence. The government has already amended the draft text to reflect the ECB’s guidance, Varga said in his statement.

Read more: Central Bankers Used to Keep Out of Politics. Not Any More

Orban and Matolcsy have been at loggerheads over economic policy since the Hungarian leader went on a spending binge to help secure his fourth consecutive election victory in 2022, a move that fanned inflation and led to successive fiscal slippage. Meanwhile, the government has blamed the recession on what it deems to be an excessively strict monetary policy.

The feud has become deeply personal, with Matolcsy on Thursday calling out his former deputy Marton Nagy, now Orban’s influential economy minister, for being behind efforts he sees as attacks against the central bank. Nagy is a frequent critic of monetary policy, which he’s said is too tame and restrains economic recovery.

The standoff adds to headwinds for the forint, which already slipped to a five-month low this week after the central bank boosted the size of its monthly interest rate cuts to a full-percentage point, from 75 basis points at the previous four sessions. The benchmark rate is now at 9%, still by far the highest in the EU.

“The forint shouldn’t be at current levels against euro, this weakness indicates market players may have turned their back on the currency because the environment isn’t supportive,” said Miklos Kolba, a currency trader at ING Bank in Hungary.

--With assistance from Veronika Gulyas.

(Updates with government comment in fourth paragraph, forint outlook in last two paragraphs.)

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