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MNB maintains ʼwatchful approachʼ to monetary policy

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The Monetary Council of the National Bank of Hungary (MNB) has repeated its message that the base rate is expected to stay at the current level “for an extended period” and suggested the limit on three-month deposits, its main sterilization instrument, would be lowered if looser monetary conditions are needed to meet the inflation target, news agency MTI reported.

“If the assumptions underlying the [MNBʼs] projections hold, maintaining the current level of the base rate for an extended period and loosening monetary conditions via the limitation of the deposit facility are consistent with the medium-term achievement of the inflation target and a corresponding degree of support to the economy,” said the condensed minutes of a policy meeting on September 20. 

The statement nearly matches others made by the Monetary Council (MC) since it signaled an end to an easing cycle at a policy meeting in May; however, the MC has now also noted the introduction of limits on three-month deposits.

The MNB announced after its September policy meeting that the amount banks can place in three-month deposits would be limited to HUF 900 billion in the fourth quarter.

In the minutes from the meeting, the MC suggests that if looser policy is necessary to lift inflation to the mid-term “price stability” target, it would limit the three-month deposits further, rather than cut the base rate.

“If subsequently it was warranted to loosen the monetary conditions further to meet the inflation target, the Monetary Council would stand ready to apply a stronger limitation to three-month deposits,” according to the minutes.

The MC also noted that a “watchful approach” to monetary policy is still justified because of uncertainty in the global financial environment.

The decision to keep the base rate on hold at the September policy meeting was unanimous. It was also the first vote for Kolos Kardkovács, a new external member.

Kardkovács replaced Andrea Bártfai-Mager, who resigned from the MC in the summer to replace the governmentʼs retiring commissioner for postal affairs and national financial services.

Until Bártfai-Mager was replaced, one internal member of the eight-member MC had been absent from policy meetings to abide by rules that require more external members than internal ones. Without a replacement for Bártfai-Mager, there were four external and four internal members. The number of MC members is limited to nine by law.

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