Hungary cenbank may retire 1-week deposit facility
The approaching rate hike by the MNB has been keeping investors on their toes for weeks. The rate-setting Monetary Council is set to hold its next policy meeting on 22 June (next Tuesday), and the start of a new rate hike cycle has practically been announced.
New details about the specifics keep being revealed. Last week, MNB Governor György Matolcsy and Deputy Governor Barnabás Virág toth said the move would be necessary due to inflation.
“We probably need a tightening cycle, and if there’ll be one, quarterly steps are the most likely” to rein in the European Union's fastest inflation without putting into jeopardy the recovery of the economy, Pleschinger told Bloomberg.
This implies that the rate hikes would be linked to the bank's new inflation forecasts. The next Report on Inflation is to be released on 22 June.
The rate-setter also said the bank may also simplify its policy toolkit upon the start of its tightening cycle. The focus is intended to be shifted back to the base rate (0.6%) and away from the current benchmark tool, the 1-week deposit facility (0.75%).
That may entail eliminating the 1-w depo facility, which was designed to respond to market turbulence rather than inflation trends.
Pleschinger said the bank had come up with the 1-week facility "as a temporary tool to deal with volatility caused by market turbulence as long as the expected risks associated with inflation remained symmetric.”
That period is behind us.
The rate-setter also said that if the bank moves too slowly, it could have "serious negative market consequences", adding that moving too rapidly could "undermine economic growth, which is still fragile."
"We need to strike a balance," he said.
Cover photo: MTI/Tibor Illyés
