Economy 14 June 2021, 6:24pm

Hungary c.bank has no intention to retire 1-week deposit facility - Pleschinger to Portfolio

Portfolio

Neither the 1-week deposit facility or its interest rate will be eliminated, reports about this are based on a misunderstanding, Monetary Council member Gyula Pleschinger told Portfolio late on Monday. He stressed that no move of this sort (which would be tantamount to a drastic rate reduction) is on the agenda. Quite the contrary, starting a rate hike cycle is justified.

Pleschinger told Portfolio the current situation warrants a rate hike cycle, and his personal view is that in a data-driven mode, a three-month frequency linked to the publication of the Inflation Report would be appropriate. The Monetary Council of the National Bank of Hungary (MNB), however, has made no decision on this matter, this is merely his personal opinion.

He stressed that his remarks about the role of the 1-week deposit facility were misunderstood (Editor's note: which likely contributed to the weakening of the forint today), he merely intended to say that in his personal assessment, the emergency characteristic of this particular tool of the central bank is no longer required therefore the difference between the base rate (0.6%) and the 1-week deposit facility (0.75%) could be worth eliminating.

(The misunderstanding could have stemmed from Pleschinger telling Bloomberg that the 1-w depo facility had been created as a temporary tool "tool to deal with volatility caused by market turbulence as long as the expected risks associated with inflation remained symmetric", adding that “that period is behind us.”)

Pleschinger's clarification considerably changes expectations about next week's policy meeting. The market was obviously taken by surprise by the report about the simplification of the monetary policy toolkit (an effective monetary easing), but as it turns out the MNB has no such plans.

In view of what the rate-setter said, the most likely outcome of the upcoming policy meeting (on 22 June) is a raise to the 0.75% 1w depo rate, to be followed by a hike to the 0.6% base rate. It is also a possibility that 'merging' the two interest rates would eleminiate the gap and both will be the same. However, at this point this is merely an educated guess. There have been reports from the MNB recently that levelling out the two rates is not on the agenda just yet. The meeting on Tuesday will be exciting for sure.

Cover photo: MTI / Tibor Illyés