Zsigmond Jarai
Governor, Magyar Nemzeti Bank, Hungary
Certainly one of the most outspoken central governors of the year, Zsigmond Jarai has not been shy about his concerns over the Hungarian government’s overspending.
Some criticised Mr Jarai’s feuding with the government because it has weakened Hungary’s policy-making credibility. The Banker’s judges focused on how well founded his messages were and on the challenges the governor had to overcome.
Nominated by the 1998-2002 centre-right government, in which he served as finance minister in 1998-2000, Mr Jarai played a crucial role in drawing up Hungary’s new central bank act in 2001. The act defined inflation targeting as the Magyar Nemzeti Bank’s (MNB) primary goal, which Mr Jarai very passionately pursued.
In highly politicised countries, changes of government cause frictions with supposedly independent organisations, and Hungary is no exception. The change of government in 2002 has made Mr Jarai inevitably unpopular with the succeeding Socialist-led administration.
Interference by government in the central banks’ operations increased in 2005. The government enlarged the central bank’s monetary council to include more government-nominated members and this was seen as an effort to temper the council’s approach to interest rates.
At the time, even the European Central Bank had to intervene, warning Hungary to respect the independence of the MNB.
In the past year, a looming fiscal crisis, in conjunction with a weakening of market liquidity internationally, has led to considerable turbulence of the forint.
Although the MNB and its enlarged monetary council initiated a tightening cycle of interest rate rises, the initial move was too soft to calm markets – a 25 basis points rise against the wishes of Mr Jarai, who wanted a 50bp rise. It was only subsequently that the central governor’s efforts to push for a more aggressive interest rate were successful.
Such interest rate raises helped stabilise the Hungarian currency and led to a rally in forint-denominated bonds.
“Over the past few years we have managed to help the Hungarian public and economists to develop an awareness of the importance of price stability as a guarantee of balanced economic and social development,” says Mr Jarai.
“We have succeeded in bringing down inflation from double-digit levels, and price stability is now within reach. The [MNB] has been engaged in numerous conflicts by consistently adhering to central bank independence.
“Through constant communication, it has called attention to the need for fiscal consolidation, to the benefits of early euro introduction and has kept markets informed of the real situation of the economy.”
