Explanatory statement from the MNB: no policy cycle, next revision in late June

HUNGARY - In Brief 28 Mar 2019 by Istvan Racz

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MNB vice governor Márton Nagy made an interesting statement at an investment seminar today, providing some explanation, but also a refining, to the view presented by governor Matolcsy right after the Monetary Council meeting on Tuesday, March 26.Mr. Nagy essentially repeated the Governor's words by saying that the tightening measures taken on Tuesday were of a one-time character rather than the start of a new tightening cycle. But he also said that in the forthcoming period, further one-time measures may be required in one or the other direction, depending on incoming data. The MNB's current intention is to review the inflation picture and its policies once in a quarter, with its possible measures following the quarterly inflation reports. The reason why the direction of potential measures cannot be told in advance, so spoke Mr. Nagy, is the fact that risks are pretty much distributed symmetrically at this point: the global (and the European) economy is cooling, whereas domestic macro trends are inflationary, and the aggregate impact of those two trends can go both ways. Consequently, the need to carry out monetary tightening or loosening from where the MNB currently stands seems equally likely.In our view, this clearly says that the next MNB policy review is to come only in late June. On content, we do not agree that risks are distributed symmetrically. In a great part, this is because Hungary still has a lot to rely on in terms of EU development transfers, which is non-market financing unaffected by the economic cycle, it has a tightening labor market and very high wage growth, and also because domestic industry seems to be rather resistant to the weak cycle, given i...