Economy
Hungary cenbank chief says this is not the start of a tightening cycle
Specific, one-off decision - 15:44
Answering a question Matolcsy stressed that domestic and external processes are on different course. In Europe, they are trying to rid of deflation, while in Hungary consumption and household assets are increasing. He also noted that the MPC’s decisions take into consideration the quarterly Reports on Inflation.This decision was necessary, sufficient, specific and one-off in nature, he underlined. The characteristics of monetary policy have not changed. The MNB has shifted its focus even more to means that help fulfil its first duty, he added.
After stating that they take decisions on the basis of the quarterly inflaiton report, and that the bank’s monetary policy will remain loose and supportive, no further tightening is expected in April and June.
Not much of a tightening this is - 15:37
On the whole, the MNB has delivered a surprise today. As it turns out, it will not tighten as much as the market expected. It is particularly suprirsing that Matolcsy keeps stressing that this was a one-off decision. Analysts believed the MNB will announce the start of a tightening cycle, so in this respect they have been “let down". This is what triggered the current weakening of the forint.
Today’s tightening is symbolic. Monetary conditions have not been meaningfully tightened and the remarks by MNB offiicals suggest they may not be tightened further. In view of what MNB Deputy Governor Márton Nagy has said, we would say that this tightening (as a result of which Bubor will climb 10 basis points) cannot be considered as significant.
Today’s tightening is symbolic. Monetary conditions have not been meaningfully tightened and the remarks by MNB offiicals suggest they may not be tightened further. In view of what MNB Deputy Governor Márton Nagy has said, we would say that this tightening (as a result of which Bubor will climb 10 basis points) cannot be considered as significant.
This is not a cycle! - 15:25
This is a one-off specific decision; we have not found it necessary to launch a [tightening] cycle, said Matolcsy.Stock of outstanding FX swaps to be reduced - 15:34
The measure is aimed at reducing the stock of outstanding FX swaps by HUF 130 bn, said Deputy Governor Márton Nagy. Today, the Council reduced the average amount of liquidity to be crowded-out for the second quarter of 2019 by HUF 100 billion to at least HUF 300-500 billion (from HUF 400-600 bn in Q1).There may be liquidity shocks therefore the reduction is not set in stone, he added.
Bubor will rise - 15:26
Responding to a question by Portfolio, Nagy said the measures will raise Bubor rates (1-3m) by 10 basis points. The first pricing is tomorrow, we will do everything so that the rise is neither greater nor smaller than that, he added.Monetary policy will remain loose - 15:23
Monetary policy of the MNB remains “supportive [and] loose", said Matolcsy. Without a need to take further action, we will not take further action. If they are needed, we will, he added.He underlined that the transmission cannot be perfect that is why the bank has launched its corporate bond programme. It is a natural and logical continuation of the Funding for Growth Scheme, he stressed, adding that it will be aimed at medium-sized and larger enterprises.
Inflation target reached - 15:12
If there is no consolidation that can be considered as rapid even by economic history standards, there is nothing, said Matolcsy. In that case the Hungarian central bank cannot contribute to economic growth, he stressed, adding that these six years will be perceived like this a hundred years from nowAs regards the current situation of the economy, he said the MNB has reached its medium-term inflation target. We consider this to be a watershed and very few of the world’s large central banks have achieved this.
“We have set a sustainable inflation target," he said, noting that domestic consumption is on the rise, wages are increasing, but the external environment carries risks to the downside.
“Our focus is on core inflation adjusted for indirect tax effects; our decisions are based on that," he said. Today’s measures are necessary and sufficient to sustainably reach the inflation target, he stressed.
“Some believe today’s decision is the first step of normalisation, but after 2008 who knows what is normal? Negative interest rates are definitely not," ha concluded.
MNB schemes contributed to economic growth - 15:08
Over the last six years, the central bank contributed 12% of the 23% GDP growth, said Matolcsy. Its contribution to the country’s improving financial situation was over HUF 10,000 billion, in which the reduction of the base rate played a key role.Without the interest rate reduction, corporates would have paid banks HUF 1,400 billion less. Households saved just as much thanks to lower interest rates. The third stage of the FGS channelled HUF 2,800 bn into the Hungarian economy, he added.
Matolcsy noted that today is the end of a six-year monetary policy cycle [in fact it’s more than seven years, since the base rate was last raised in December 2011], and the start of a new six-year cycle.
He stressed that the central bank has three core mandates: to reach its inflation target, achieve price stability and support the government’s economic policy. These, he added, have been achieved by “creative and bold" means, according to several people.
Photo and cover photo by Portfolio / Máté Szekeres
