Economy
Hungary cenbank has no plans to weaken the forint - rate-setter
Virág said yesterday that a fall in long-term interest rates could encourage investments and consumption and weaken the forint.
“We need an exchange rate level which ensures that 3% inflation can be achieved in a sustainable way on the monetary policy horizon," he said, declining to specify an exchange rate level.Pleschinger said the MNB is aiming for a flatter debt yield curve, but stressed that it has no exchange rate target or plan to weaken the forint. He added that the easing focus should be on rates and lending.
The forint has not reacted to either Virág’s or Pleschinger’s comments, which may have to do with lower global investor activity as markets in the United States are closed due to Thanksgiving. HUF has been moving sideways around 312.40 throughout the day on the interbank market.
Additional key messages by Pleschinger:
“We need an exchange rate level which ensures that 3% inflation can be achieved in a sustainable way on the monetary policy horizon," he said, declining to specify an exchange rate level.Pleschinger said the MNB is aiming for a flatter debt yield curve, but stressed that it has no exchange rate target or plan to weaken the forint. He added that the easing focus should be on rates and lending.
The forint has not reacted to either Virág’s or Pleschinger’s comments, which may have to do with lower global investor activity as markets in the United States are closed due to Thanksgiving. HUF has been moving sideways around 312.40 throughout the day on the interbank market.
Additional key messages by Pleschinger:
- The MNB may lower its economic growth outlook sharply next month. (In September's Report on Inflation it forecast growth would slow to 2.5% in 2016 from 3.2% expected this year. It is not clear from the interview which estimate would be reduced. As the Q315 growth came in at 2.3%, the 3.2% forecast for 2015 may prove to be overly optimistic.) "There is a strong chance that our December inflation forecast will project a much lower growth outlook," the rate-setter said.
- "In theory, it is possible that the output gap (between actual and potential economic growth) will close later than at the end of 2017," as was expected in the September inflation report. A clearer picture would emerge in coming weeks, he added.
- Any easing the central bank adopts in response would probably use non-conventional policy tools. The MPC has lowered the base rate this year to a record low 1.35% and already launched unconventional easing to counter a slowing economy. The next policy meeting is scheduled for 15 Dec. MNB Managing Director Barnabás Virág told Reuters on Wednesday that the bank could "fine-tune" its monetary easing toolkit next month to counter downward risks to inflation and growth.
- "If it is indeed the case that there is room for further easing, then there is a good chance that we will look at our targeted non-conventional tools," Pleschinger said.
- A programme to channel commercial banks' funds into government debt from central bank deposit facilities was one such option, but the Monetary Council had not yet discussed that possibility.
- In this context Pleschinger noted that the MNB is aiming for a flatter debt yield curve, but stressed that it has no exchange rate target or plan to weaken the forint. He added that the easing focus should be on rates and lending. (It is possible that the MNB will further cut the upper limit of the 2-week MNB deposits, the volume of which is to be lowered to HUF 1,000 bn from around HUF 5,000 - it is now around HUF 1,400 bn.)
