The MNB this week: just as expected

HUNGARY - In Brief 01 Feb 2018 by Istvan Racz

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Yes, we had a rate-setting meeting on Tuesday and the second MIRS auction today. But everything went smoothly, just as expected.On Tuesday, the Monetary Council took no action and said essentially nothing new, may be except for saying that the MNB already started to buy mortgage bonds in January. This latter one was somewhat surprising, as so far, there has not been any sign of actual transactions in this area, according to the MNB's own data. But maybe they only meant that they had started the program itself in general, which is a slightly different matter of course.Today, the MNB sold HUF60bn of MIRS (after the HUF75bn sold two weeks ago), HUF10bn for 5 years and HUF50bn for 10 years. This was now a fixed-rate auction, so the only real question was the pricing with which the MNB wanted to get through on this occasion. Well, just as we guessed, the Bank set minimum fixed rates of 0.46% for 5 years and 1.17% for 10 years, i.e. exactly the same as their minimum rates set two weeks ago. But of course, the actual minimum rates were markedly higher then, 0.76% for 5 years and 1.76% for 10 years, due to massive demand.Of course, the next question is how much effect this development will have on LT government yields, which stood 7 bps and 5 bps above their pre-MIRS (November 20, 2016) levels yesterday, for 5 years and 10 years, respectively. Well, we think not necessarily a lot, and the impact may depend more on global capital market conditions than on local MIRS results.