“We see rates remaining unchanged at 0.9% next week as the MNB sees no need to change base rates but discusses and prepares for the much bigger move towards a new liquidity framework, with the heavy lifting done by BUBOR and the MNB directing liquidity more actively,” the analysis says.
Nomura expects the MNB to maintain a neutral stance on monetary conditions, pointing to low though rising CPI inflation, but to highlight the lack of demand pressures on inflation and the tempered growth recovery as reasons to maintain a wider monetary policy-loosening stance with these deeper changes to come.
“The shifts this year for the MNB have been a long time coming. The last major shift in policy was in December last year (another MNB attempt at lending growth), which was then implemented through Q1 with the LTRO facility, preferential deposit facility and final round of FGS [Funding for Growth Scheme],” the analysis recalls. “Since then we have had the ebb and flow of ongoing duration swaps in the background (which then trickled to nothing through Q2), as well as frequent verbal intervention from Deputy Governor [Márton] Nagy to massage markets. We outlined the new strategy a few weeks ago (the MNBʼs new strategy is extremely clever…), but have been awaiting full confirmation of its format at the September Monetary Council,” the analysis adds.
According to analysts at Nomura, the central bank is planning BUBOR trading 20 bps or so below base rates and is using the asymmetry in the band of rates around the base rate, as well as shifts in central bank facility access and new BUBOR rules (quote and volume requirements), to achieve this.
CIB Bank analysts said in a flash report at the end of July that the central bank is expected to keep its base rate intact for the rest of the year at 0.9%. The Monetary Council left its main policy rate unchanged at 0.9% at the end of July, a decision that was expected as the MC clearly signaled the end of its easing cycle in May, and this matched the unanimous market consensus.
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