The MNB appears to be satisfied with its current policies

HUNGARY - In Brief 26 May 2020 by Istvan Racz

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The Monetary Council announced no policy change after today's regular monthly rate-setting meeting. In its statement, the Council acknowledged with satisfaction the Q1 GDP data (+2% yoy in sda terms), and confirmed its expectation that adjusted core CPI-inflation (3.8% yoy in April) will decelerate to 3.2-3.5% as an annual average for 2020 and then further to 3% in 2021. The statement also confirmed that although the MNB's mandate remains to secure domestic price stability, the Bank is planning continue its policies aimed at the mitigation of the negative consequences of the ongoing Covid-19 crisis.None of this is surprising. The EURHUF is trading around 349, quite strong compared to its peak levels during the crisis, adjusted core inflation came slightly down in April (from 3.9% yoy in March), government bond yields have also fallen from crisis-time highs, and the implementation of the MNB's extraordinary policy programs is proceeding. The Bank is currently seen to slow down its direct purchases of government bonds, apparently believing that it is a sign of desirable normalisation if someone else is buying government debt, even if the buyers are banks and purchases take place out of funds provided by the MNB. At today's buying auction, the MNB purchased HUF 10bn of government bonds, raising the total bought since the May 4 start of the program to HUF 159bn, a relatively modest amount compared to the HUF 1000bn overall program size, which was initially thought to be sufficient for purchases over a 6-8 week period. True, the MNB has lent out HUF 912bn to banks in long-term (mostly 5-year) collateralised loans in the meantime, informally expecting banks to use those fund...