Are you sure?

MNB can help recovery through ensuring predictability and stability, central bank says

It is through maintaining predictability and ensuring the stability of prices and the financial system that monetary policy can contribute to economic recovery; if forint-based lending starts to grow, the central bank will consider the possibility of setting up a new mortgage bond purchase programme; however, the corporate bond market is too small for substantially influencing the economy through secondary-market purchases, the National Bank of Hungary (MNB) told MTI on Wednesday evening.

The MNB’s statement came in response to MTI’s inquiry after national economy minister Gyorgy Matolcsy said he was asking central bank governor Andras Simor to consider the possibility of the central bank using monetary policy tools to help economic growth. Such tools could include the central bank restarting its mortgage bond programme and launching a corporate bond purchase programme using the forint funds of the MNB in order to support growth.

Monetary policy, as the Monetary Council has repeatedly said before, can contribute to economic recovery and the creation of an economic climate encouraging investments and job-creation through maintaining predictability and the stability of prices and the financial system.

When forint-based lending starts to grow, the central bank will consider the possibility of setting up a new mortgage bond purchase programme, the statement added.

As the size of Hungary’s corporate bond market is around HUF 80bn, less than 0.3% of the GDP, it is impossible to exert substantial influence on the economy through secondary-market purchases on this market, the MNB said. Furthermore, the central bank would undertake credit risk by such purchases, which, in the event of default, would incur central budget expenditures, the MNB pointed out.

In response to an announcement of the national economy minister, the statement also added that the central bank will not take part in the recapitalisation of the state-owned Hungarian Development Bank (MFB) as the central bank act stipulates that the MNB can only acquire a holding in an organisation established in connection with its activity and EU law prohibits the central bank from purchasing securities issued by state-owned institutions.