A rare kind of MNB statement on the forint's exchange rate

HUNGARY - In Brief 25 Nov 2015 by Istvan Racz

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'We need a forint exchange rate, by which the 3% inflation target can be reached on the forecast horizon." This came from a high-ranking staff member of the MNB, Mr. Barnabás Virág, executive director, talking to Reuters earlier today. He added that Hungary's inflationary and growth outlook are both pointing downwards, and inflation may rise to the target level later than the previously expected H2 2017 (the current "forecast horizon"). Lower than expected inflation is explained by lower oil prices and a stronger than expected forint. He also said that on December 15, when the Monetary Council will convene next to set interest rates and discuss the Q4 inflation report, there is likely to be further room for monetary loosening. Rather than cutting the base rate any further from 1.35%, decision-makers may turn to non-conventional methods again. Finally, he said the Council may refine the MNB's 'self-financing program' at the December meeting, with the possible aim to reduce long-term HUF government debt yields, adding that lower LT yields could contribute to a weakening of the forint. Well, this is what we call a strong message. Mr. Virág has essentially given a rather detailed rundown on what he believes the Monetary Council is likely to do at its next meeting and why, the latter including the likely findings of the upcoming inflation report. In addition, it is a very rare event that the MNB has spoken so directly about the use of the exchange rate as a tool to ease monetary conditions and foster growth. The usual way of the Bank is to keep claiming that it does not have an exchange rate target whatsoever. Telling this clearly that the MNB wants a weaker HUF and will sa...