Deputy Governor: MNB to employ non-conventional tools to ease monetary conditions

The MNB has shifted to non-conventional tools such as the self-financing program, aimed at encouraging banks to buy government papers or the Growth Support Program (GSP), announced yesterday, because the present low interest rate environment has significantly reduced the efficiency of base rate changes, Nagy said.

The above programs can be much more affective and focused in meeting the central bankʼs goals, such as raising lending to small- and medium-sizes enterprises and promoting growth through supporting investments, he said.

The MNB would like to flatten government securities yields as well, Nagy said. They still consider long-term yields too high but they would also like to push short-term rates down. He said the level of the yield curve was important and it should be as flat as possible.

The self-financing program as well as the GSP is one way of easing as lending rates are falling and it will be cheaper to borrow both for businesses and private individuals, the deputy governor said.

The monetary easing is necessary because there are downward risks to next yearʼs GDP growth, projected at 2.5% by the MNB. The MNB intends to reduce these risks through targeted moves made in targeted segments, Nagy added.

The economy will only slowly reach the 3% inflation target and that allows plenty of room to maneuver. Another factor that influences the monetary policy is the countryʼs falling foreign currency exposure, therefore, there is no need to worry about exchange rate stability risks, the deputy governor said.