The MNB is urging the government to loosen fiscal policy further

HUNGARY - In Brief 24 Aug 2016 by Istvan Racz

---

1. Yesterday, the Monetary Council left the base rate and the Bank's O/N rates unchanged at its regular monthly rate-setting meeting, just as expected. This left the forint roughly unchanged around EURHUF 310, or more accurately, the forint even appreciated a little bit.2. In its communiqué, the Council said that 'the Hungarian economy continues to be characterized by unused capacities, and inflation is going to remain low on a lasting basis'.3. Today, the MNB has released its semiannual fiscal report, in which it said that there is still room for further fiscal loosening this year, which would be important, to make sure that the economy gets the originally planned fiscal impulse, rather than one markedly weaker than that. On current policies, the MNB expects the ESA2010 fiscal deficit at 1.6% of GDP (assuming no spending out of the 0.2% of GDP fiscal reserve fund), against the 2% deficit target. It also expects the gross debt ratio at 74.5% of GDP at end-2016, down from 75.3% at end-2015.4. Still today, the MNB opened its 3-month deposit window again, the first time since it shifted to monthly tenders from the previous weekly ones. As pre-announced in early July, the MNB still accepted new deposits on an unlimited basis on this occasion (limited access will be introduced only in late October). Thus the outcome was quite accommodating, as new placements reached HUF637bn, and the total stock sterilized through the 3-month facility grew to HUF1837bn, up from HUF1705bn on July 27, on which date the weekly acceptance of new deposits was discontinued.All this action deserves the following remarks: On 1: The Council's no change in the rates decision was fully in order, in li...