Monetary Council meeting: Laissez faire, laissez passer

HUNGARY - In Brief 22 May 2018 by Istvan Racz

---

Whatever central bank action the most recent depreciation of the forint vis-a-vis the euro could require, the Monetary Council did or said almost exactly nothing at today's rate-setting meeting. The Council essentially said that both its interest rates and its other tools are just all right as they are, and by the way, reaching the Bank's medium-term inflation target on a sustainable basis requires the continuation of loose monetary conditions, with regard to the short as well as the long end of the HUF yield curve. This appears quite relaxed and suggests that the MNB has no problem with the current EURHUF 315-320 exchange rate, at least in short term.Perhaps the most telling part of the MNB's communication today has been a communiqué on the Bank's website, which let readers know that Governor Matolcsy visited the Fudan University in Shanghai and presented a lecture there yesterday, rather than being busy preparing for today's MC meeting in his office in downtown Budapest. This strongly suggests that the sense of any problem or at least of a difficult situation is just missing from the MNB's current thinking. Or it is meant to suggest exactly that, we do not know.The Monetary Council's inactivity on this occasion is no great surprise in itself, although it can take out a minority of investors who may have speculated on some MNB action to counter the forint's depreciation right away. The MNB may just want to wait until the dust settles on international capital markets or it turns out that the problem is bigger than thought initially, or it just may not want to demonstrate that whatever is currently happening on the markets really constitutes a problem and they are not i...