MNB ‘unexpectedly dovish’ after Council meeting


Photo by Jessica Fejos

The National Bank of Hungary (MNB) is being viewed as unexpectedly dovish after its Monetary Council decided Tuesday to set a HUF 500 billion limit on the stock of three-month deposits, the central bankʼs main sterilization instrument, according to analysts. The base rate was left intact at 0.9%.

“A degree of further easing was offered by the MNB [yesterday], which could indicate that it is much more dovish than the market believed and clearly is willing to look through risks around inflation – indeed, we believe it is happy with a higher inflation environment to get more real HUF weakness,” London-based analysts of Japanʼs Nomura said in a flash comment sent to the Budapest Business Journal. Nomura admitted that the reduction came as a surprise as they had thought the cap would be less of a focus now and only adjusted to tightening liquidity in the banking sector in Q2. 

CIB Hungary’s analysts also confirmed in a flash sent to the BBJ yesterday that the step was hardly expected.

“Regarding non-conventional measures, the quarterly announcement on the restriction related to the 3M depo facility was announced for Q2. The limit was set at HUF 500 bln, down from HUF 750 bln in Q1 2017. The change was slightly more significant than expected as suggested by market-based information. In addition, the MNB decided on the extension of its forint swap facilities with a 6M and 12M tool,” the CIB flash highlighted.

Overall, Nomura described the Monetary Council’s decision as signaling a very dovish attitude in the face of a marginal revision upwards of CPI expectations for this year and broadly unchanged other forecasts. “We think the MNB is signaling that it has no concern about inflation or the stability of its framework,” said Nomura analysts.

CIB Bank noted that the macro outlook of the central bank has remained unchanged, and was also underpinned by the freshly released CPI and GDP forecasts. Inflation is projected at 2.6% (slightly above the previous 2.4%) for 2017, while the 2018 forecast has remained unchanged at 3.0%. GDP forecasts have remained unchanged for both years (at 3.6% and 3.7%). Details will come on March 30 in the MNBʼs next Inflation Report, CIB noted.

Based on the communication of the Monetary Council and earlier MNB comments, CIB Bank said it expects the central bank to keep its base rate unchanged at 0.9% — as it did yesterday — for an “extended period,” probably as long as the end of this year, or even later. However, it added, “further unconventional measures are possible, though the room for maneuver has decreased and money market parameters closely watched by the MNB also do not support a rapid change. New lending programs are unlikely for the time being,” CIB Bank noted.

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