MNB cut access to 3-month deposits in line with expectation

HUNGARY - In Brief 21 Sep 2016 by Istvan Racz

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Arguably, the MNB's decision of yesterday, to leave its interest rates unchanged and to reduce the stock of monetary sterilization through 3-month deposits to HUF 900bn by end-2016 was much less sensational than S&P's decision to upgrade Hungary last week. This is no criticism, of course, as central banks are usually expected to provide advance guidance on their decisions, in order to avoid undue market volatility.Apparently, the MNB was successful in its own advance guidance on this occasion, as analysts expected almost exactly the actual decision, except that Portfolio.hu's consensus was a cut in the 3M deposit to HUF 1050bn by end-December. The little deviation from this consensus is no reason for any great excitement, of course. On the decision itself, the intended cut in the 3M deposit is HUF 700bn or €2.3bn, which very closely resembles the quarterly amount of Hungary's C/A surplus. However, this is only true if you ask the MNB, as after today's placements by banks, the stock of 3-month deposits is in fact HUF 2226n, rather then the HUF 1600n the MNB cited yesterday (and end-month should be compared to end-month in the case of a tool which is operated with monthly periodicity). So we claim that the intended cut is bigger than indicated by the MNB yesterday.Now, banks could take their HUF 1526bn or €4.9bn to the government bond market or to the money market, in which case yields could sharply fall in both areas. But this is less likely, of course. Even though the MNB keeps claiming that BUBOR and government bond yields have been adjusting downwards since the announcement was made on the restriction of access to the 3M deposit in July, the fact is that BUBOR fell m...