MNB starts renewing monetary policy, but still long way to go, governor says
The renewal of Hungary's monetary policy started five weeks ago, but "we are still at the beginning," György Matolcsy, the recently appointed governor of the National Bank of Hungary (MNB), said in an interview with MTI.
Price stability and financial stability are "in order", Matolcsy said, referring to the goals set out for the MNB in the central bank act. But the domestic financial system still operates in a way that is too dear, he added. Supporting the government's economic policy, the third aim outlined in the central bank act, should also be a focus of monetary policy, he said. Matolcsy said the MNB had "set in stone" a goal to use all means to reduce Hungary's external financial dependency, including its exposure to short-term foreign financing.
The MNB recently announced plans to cut international reserves by €3 billion by reducing short-term external debt, thus lowering the stock of two-week bills from HUF 4,500 billion to HUF 3,600 billion. The plans were announced as part of the MNB's "Funding for Growth Scheme", under which it will make available a combined HUF 500 billion of financing to banks for low-interest SME lending and the conversion of foreign currency-denominated corporate loans into forints. Matolcsy said banks had signalled "massive interest" among companies for the credit.
Achieving price stability has created the opportunity to support economic growth and employment with the tools of monetary policy, he said. Hungary's year-on-year consumer price index fell under the central bank's mid-term 3% "price stability" target in February.
"Without giving up any of the old goals, the new goal of preserving workplaces, sustainable growth and economic stability must be put in the forefront," he added. "An economy in the 21st century is not stable as long as its employment rate is under 70%, a European Union economy is not stable as long as its investment rate is under 20%, and a Central Eastern European economy is not stable as long as growth is not twice that of growth in the German economy," he said.
Matolcsy said that several of the ideas submitted in a recent in-house research competition at the central bank could be integrated into monetary policy decisions. "The central bank will put monetary policy on a firm professional footing in the coming months and years," he said, assessing the work of the 103 staff who submitted research. A number of good ideas and proposals have accumulated, but very few of these were applied to monetary policy earlier, he added. The products of the competition will soon be published, he said.
He expressed support for a proposal by Hungarian Banking Association head Mihály Patai, who suggested that financial institutions that are not sufficiently active in Hungary should be excluded from access to the MNB's two-week bills, the central bank's main tool for soaking up excess liquidity. Under Patai's proposal the central bank would revert to its earlier practice of offering two-week deposits, instead of the bills, meaning only domestic lenders could place their money with the MNB, he added. Banks that enjoy the high yield of the MNB bills should commit to lending in Hungary, to participating in the Hungarian economy and keeping workplaces, he said. He added that he would propose ending the practice of allowing foreign investors to buy the two-week MNB bills. Although only domestic banks may subscribe the bills, there are no limitations on secondary market sales to foreign investors.
Matolcsy said the central bank would support a merger of the MNB and the financial market watchdog PSzÁF if one was initiated by the government or the governing parties. Irrespective of a possible merger, MNB needs a third deputy governor, he added.
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