Hungary cenbank holds much-awaited policy meeting

Any modification to interest rates would have caused a huge surprise. The key question is whether the bank's rhetoric will contain any reference to the record weak forint, and more particularly to its effects on inflation. The MNB has invited analysts for a talk at 3:30 P.M. today, and the issue will most likely be raised there. As regards the Monetary Council's official statement due out at 3 P.M., the market will keep a close eye on the volume of liquidity the MNB plans to have crowded out in the fourth quarter. The MNB may even ease monetary conditions via FX swaps, should it choose to do so.

The MPC was in a controversial situation before today's policy meeting. On the one hand, in the wake of the easing by the Federal Reserve and the European Central Bank (ECB) it could have deployed additional non-conventional policy tools. On the other hand, the sharp and persistent weakening of the forint in the last few weeks may eventually pass through to inflation, and irrespective of the MNB's recurring statement that it has no exchange rate target, the impact of the weak HUF on CPI cannot be shrugged off forever. 

Portfolio will report about the key messages of the MPC's statement, as well as about the discussion with MNB officials.