MNB still sees no problem with the weak forint

HUNGARY - In Brief 14 Jun 2018 by Istvan Racz

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Another relaxed comment came from the Monetary Council, this time from Gyula Pleschinger. Speaking today, he saw no reason to change the MNB's existing loose policy, despite the continuation of the forint's slide to EURHUF 322 today. He said the weak forint may temporarily push up CPI-inflation to above 3%, but it can remain within the Bank's 2-4% tolerance range, and given that core inflation is still around 2% (2-2.4% yoy in May - I.R.), the headline rate is still likely to reach the 3% target level on a sustained basis only around mid-2019.In fact the MNB has carried out a small amount of tightening over the last one and a half months, as a result of which the 3-month BUBOR rose by 9 bps to 0.13% between end-April and June 13. Over this period, the stock of O/N deposits fell by HUF238bn to HUF599bn, and the reduction was HUF357bn in the last 13 days when the MNB did not sell any extra amounts of FX swaps, just rolled over maturities. It is true that the total of excess reserves of domestic banks has fallen by only HUF46bn since end-April, as banks' preferential deposits expanded, but the point is that the MNB pays 0.9% on the latter, whereas it collects 0.15% on O/N deposits. This means that excess reserves fell a bit but because of the changing composition, the MNB is paying markedly more interest on those on average now than it did at the end of April. In any case, we do not quite see why Mr. Pleschinger had to speak in such a relaxed manner exactly on the day when the euro was suffering because of the ECB's crucial decision. He may very well be right on core inflation and the temporary nature of the weak forint's inflationary impact, but this kind of easy talk is...