The MNB has chosen verbal intervention instead of a higher deposit rate today

HUNGARY - In Brief 01 Oct 2020 by Istvan Racz

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Following some preliminary excitement on the market, the MNB has not raised the 1-week deposit rate any further at today's tender: it has been left at the 0.75%, exactly the same as one week ago. However, vice governor Virág spoke in the morning, sending the forint to significantly stronger levels against the euro (i.e. somewhat below EURHUF 360).In addition to the somewhat repetitive generalities that 'the MNB would like to avoid in any case that the uncertain global environment would raise inflation risk through any channel' and that 'the MNB is prepared to make the appropriate steps through using the appropriate instruments, if justified by inflation prospects', he basically said that the MNB is prepared to continue 'being present' on the government bond market, in view of the slower than expected economic recovery. The Bank is ready to fine-tune its current policies, including a possible increase of the existing 33% ceiling for the amount it is willing to buy out of a particular bond series. Before reaching the original HUF 1000 bn target for total bond purchases, the MNB will review its related program.The main message appeared to be that although MNB is not preparing to change its policies today, it remains concerned and will remain alert to any danger threatening price stability in the forthcoming period. More cynically, Mr. Virág could be understood as suggesting that the Bank would be more comfortable with the forint around EURHUF 360 instead of being any significantly weaker for the time being.