Rate-Setters Highlight 'Key Role' of Effective Monetary Transmission


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Members of the Monetary Council of the National Bank of Hungary (MNB) pointed to the "key role" played by the effective transmission of monetary policy at a monthly policy meeting in August, the minutes from the meeting show.

 "Council members agreed that in the current environment, the effective functioning of monetary transmission had a key role," according to the minutes of the meeting released on Wednesday.

The central bank policymakers decided at the meeting to introduce measures to drain interbank liquidity in the short term and facilitate the effectiveness of monetary transmission. The steps included raising the required reserve ratio for the banking system, launching regular discount bill auctions, and introducing a long-term deposit instrument to sterilize liquidity at longer maturities.

The council members said it was of "key importance" that short-term financial market interest rates develop consistently with MNB's policy stance "in a turbulent financial market environment, as well".

Several members acknowledged at the meeting the improved effectiveness of monetary transmission as a result of daily swap tenders providing foreign currency liquidity launched early in July.

Commenting on inflation, several members pointed out that domestic inflation was expected to remain on an upward path in the autumn months, "increasingly driven by factors outside the scope of monetary policy", the minutes show.

Members also noted that external inflation was likely to decline from 2023 as a result of a slowdown in global economic activity, a reversal in commodity prices, and base effects.

Several council members underlined that macroeconomic projections in the central bank's next Inflation Report, due out in September, would offer additional information on the future of the cycle of interest rate hikes, the minutes show. 

The council voted unanimously to raise the central bank base rate by 100 bp to 11.75% at the meeting on August 30. Deputy governor Mihály Patai and external member György Kocziszky were absent from the meeting.


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