No policy change, no surprise at today's Monetary Council meeting

HUNGARY - In Brief 28 Apr 2020 by Istvan Racz
The monthly rate-setting meeting of the Monetary Council did not bring about any policy change. Indeed, no one expected any, as the existing unusual circumstances pushed the previous meeting, the one on April 7, forward into the position of the month's real rate-setting session, and a large number new or amended policies as well as interest rate measures were announced then (or had been announced by then).So this time around, the Council only said that the Bank is going to start to buy government bonds (mostly with 3-year maturity and longer, from the secondary market, up to max one-third of any series) and mortgage bonds (HUF-denominated and fixed-rate, of at least 3-year maturity, both from the primary and secondary markets, up to 50% of any series) on May 4. The MNB will continue these purchases as long as those are required by the extraordinary situation caused by the coronavirus epidemic. No ceiling is set for the cumulative purchases in either case, but the Bank intends to hold technical revisions when total purchases reach HUF 1000bn in case of government bonds and HUF 300bn in case of mortgage bonds.So perhaps the most telling policy action under these circumstances was the Bank's rejection of all (HUF 229bn) bids for 1-12-month FX swaps at yesterday's tender. As a result, the total FX swap stock is falling by HUF 94bn to HUF 1929bn tomorrow. By this, the MNB seems to send the not so much indirect message that it would not like the forint weaker than the existing broad range of EURHUF 350-360. The rejection of banks' demand for HUF liquidity is even more telling as it took place with BUBOR at 1.02% for O/N and 1.1% for three months yesterday. On the same date, ...

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