MNB sterilisation rate up by 50 bps today

HUNGARY - In Brief 16 Jun 2022 by Istvan Racz

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The MNB raised its 1-week deposit rate, the effective sterilisation rate, by 50 bps, to 7.25% at today's tender. This has broken with the last few months' practice of raising the deposit rate by a standard monthly 30 bps regardless of where inflation and EURHUF are going. By this, the MNB is kind of returning to the previous practice of moving flexibly with the sterilisation rate if market conditions require, meaning the forint is in trouble. We would say kind of, because today's step is not particularly big, compared to the upswing of yoy CPI-inflation in May and the forint's most recent slide to EURHUF 400. But it may be sufficient for now, as the purpose of the move has been, beyond doubt, to stop the forint's rapid depreciation for now, and the rest of the effort is to come, in the MNB's current thinking, from fiscal stabilisation, administrative price controls, and the government's diplomatic efforts to get EU funds. The MNB actually spoke after the decision, in a 'background conversation' with analysts and the media, but it did not say too much new, compared to the foregoing summary. They are looking at the existing disequilibria (inflation, BOP), the war/sanctions, talks with the EU on access to transfers, and also at external interest rates. They are putting much trust in the ongoing fiscal stabilisation, and they do not believe that QE should be restarted in view of rising bond yields. They are doing again their usual end-quarter action to secure EUR liquidity for the banking system (reverse swaps, discount bonds), with a view to maintaining the normal functioning of swap markets. All the good and normal considerations, we think. The next MNB rate-setting meet...