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Hungary plans to increase Central Bank independence

Hungary's government is proposing an amendment to the country's Central Bank Act to increase the independence of monetary policy makers, timed for a change of leadership at the bank.

The government has approved the legislation, drawn up by the Finance Ministry in accordance with the central bank and reviewed by the European Central Bank, said Ferenc Pichler, a spokesman at the ministry. The bill will go to parliament for approval „soon,” he added. Hungary wants to amend the law as central bank President Zsigmond Járai's term expires at the end of next month. Prime Minister Ferenc Gyurcsány, who has clashed with the bank over fiscal and monetary policy, will pick his successor.

„This is a good tactical move, it should mitigate the market's nervousness given the nomination of the new central bank governor soon,” said Rafella Tenconi, an economist at Dresdner Kleinwort in London. „However, this could also be a way to counterbalance some unexpected negative surprises in the near term. It could be related to a surprise nominee.” The forint traded at 251.52 per euro at 11:22 a.m. in Budapest, from 251.67 late yesterday.

The currency is the world's second-best performer over the past three months, behind the Slovak koruna, having gained 5.6% versus the euro. Járai, speaking during a conference in Budapest today, said he sees the proposed amendment as a reversal of the government's earlier actions against central bank independence.

„There are no serious traditions in Hungary of independent institutions,” he said. „In 2001, Hungary got very close to real independence. After 2001 we took some steps backwards. Adding four new monetary policy members in 2004 was a clear step against independence.” The four new members, appointed by the government, brought the number of policy makers to 13. (Bloomberg)