MNB: No measure, but a reworded statement issued yesterday

HUNGARY - In Brief 26 Feb 2020 by Istvan Racz
In line with expectation, the Monetary Council announced no measure whatsoever after yesterday's rate-setting meeting. However, they issued a significantly reworded statement.Reading through the communiqué, one has the feeling that the Council simply met the likely expectation that a new situation requires a new text. But this appears to be pure and basic psychology, as beyond the fact that its analysis included some new elements, the MNB gave away nothing on what it is likely to do in the forthcoming future. And certainly nothing more than the elements already known from vice governor Nagy's statement made on February 13.More specifically, the main new elements in the text were the following:- inflation came out higher than expected in January;- the spreading of coronavirus may enhance the existing uncertainties in the real economy and on financial markets;- the forint has been quite volatile recently and the yield curve has shifted upwards;- the recent interest rate hike by the Czech National Bank had an influence;- the stock of FX swaps have been reduced since mid-January, causing a 40-60 bps increase in short-term yields;- banking sector liquidity is expected to shrink spontaneously, i.e.even without further MNB measures; and finally- "The Monetary Council will comprehensively assess macroeconomic developments the next time in the March inflation report, and it will decide on that basis how big a step is required to reach the inflation target. Should a sustained change of inflation prospects require, the Monetary Council will be ready to use all available tools."Now, some in the media appeared yesterday to read into the lastly mentioned point above that the MNB is ...

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