Conflicting signals from the MNB

HUNGARY - In Brief 27 Nov 2015 by Istvan Racz

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It usually does not look very elegant to return to any story with a markedly different conclusion within a few days' time. But this time around we need to do exactly this. As it happened, just one day after a senior staff member of the MNB (Mr. Virág, executive director) made a rare and specific statement on the Bank's preferences regarding the forint's exchange rate (see our previous post here at GSD), a member of the Monetary Council (Mr. Pleschinger) made a contrary announcement, which sounded pretty much like a correction. In this latter public appearance, Mr. Pleschinger stressed that the MNB continues to have no exchange rate target and it does not want to weaken the forint. Instead, it continues to focus on monetary loosening through interest rates and fostering bank lending to the economy. Of course, this is very substantially different from the previous day's talk, and in line with the MNB's so far known official policy approach. From this latter announcement, it seems as if Mr. Virág may have gone a bit too far in what he said, according to at least one, but more likely more than one, member(s) of the Monetary Council. On other aspects, there was no material differences between the two speakers' messages. The Bank is expected to lower its GDP outlook in its December report, it is still clearly aiming at further loosening of policy, the next step in this direction may be carried out by refining the existing 'self-financing program', i.e. essentially a desterilization program, the direct aim of that "refining" may be to lower long-term yields on HUF government debt, there may be other non-conventional policy measures considered, and the base rate is much less l...