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MNB Justifies 'Careful' Approach to Setting O/N Instrument Rates

MNB

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The Monetary Council of the National Bank of Hungary (MNB) justified a "careful" and "cautious" approach when setting rates on overnight instruments at a monthly policy meeting in April, the minutes from the meeting released on Wednesday show.

"Council members underlined that a careful, cautious approach was warranted when setting the interest rates on overnight instruments. Therefore, at the following rate-setting meetings the [MNB] would consider the persistence of the improvement in risk perceptions, which would be a key factor in setting the interest rate conditions on overnight instruments," the minutes from the meeting on April 25 show.

Since mid-October, the MNB has offered O/N deposits at daily quick tenders at a rate of 18%, well over the 13% base rate.

The minutes show the council voted unanimously to keep the base rate on hold but to cut the central bank's O/N collateralized loan rate by 450 bp to 20.50% at the meeting.

Justifying the measure, members said the risk environment, including Hungary's risk perception, had "improved significantly" since mid-October, when the upper bound of the interest rate corridor was raised amid market turbulence. Members also pointed out that, within external factors, energy prices had adjusted, the adverse effects of the energy crisis had subsided, capital inflows into emerging markets had increased and the end of the tightening cycle of the world's leading central banks was within sight.

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