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MNB weighs wide range of unconventional easing tools

The Monetary Council of the National Bank of Hungary (MNB) weighed a "wide range" of unconventional tools for easing monetary conditions further at a policy meeting in October, the minutes of the meeting released on Wednesday show, as reported by state news agency MTI.   

"Members discussed the potential instruments that could be used to ease further monetary conditions," according to the minutes. "During the discussion, they concluded that a wide range of tools might be available. And, consistent with this, they considered which tools were worthwhile to use to achieve the intended effect."

The Council has left the base rate on hold at 0.90% since signalling an end to an easing cycle at a policy meeting in the spring of 2016. However, rate-setters have made use of "unconventional, targeted" instruments to ease monetary policy further. They have lowered the O/N central bank deposit rate, set a cap on the MNBʼs three-month deposit, the central bankʼs main instrument for sterilizing liquidity, and raised the stock of EUR/HUF swaps, which pump forint liquidity onto the market. 

After its monthly policy meeting in September, the Council said it stood ready to use "additional" unconventional instruments to ease monetary conditions further, but did not describe the scope of these instruments. 

Council members reiterated their position in the latest minutes on driving down long-term yields, thus reducing the steepness of the yield curve.   

"The objective of providing further support to the real economy might be best achieved through a reduction in long-term yields by pushing down financing and borrowing costs," the members agreed. Reducing long-term yields is "of key importance from a financial stability point of view," they added.   

The Council acknowledged that long-term government securities yields had fallen since the previous monthly policy meeting.

"However, in order to ensure the persistence of the processes, it was necessary to maintain the base rate, loose monetary conditions and the bias in communications towards easing," the Council said. 

The vote to keep the base rate on hold at 0.90% and maintain the O/N central bank depo rate at -0.15% was unanimous at the meeting on October 24, the minutes show. 

Central bank Governor György Matolcsy and Deputy Governor Márton Nagy were not present at the meeting.