The MNB today: an eventful day in Budapest

HUNGARY - In Brief 19 Jun 2018 by Istvan Racz

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Well, this kind of a monetary policy event cannot be seen very often. Expecting that today's Monetary Council will not bring about any significant development in terms of tightening, the forint weakened further this morning, to EURHUF 324-325, just a bit down from yesterday. And then came the Council's widely expected no-policy-change decision, and an hour later the communiqué, in which the Council explained in a rather categorical language that it does not care a bit about the exchange rate, because of low core inflation, the wide tolerance range, the temporary nature of the current cost-push wave, etc. In even sounded somewhat combative, with the usual conclusion that reaching the 3% inflation target still requires the continuation of the existing loose stance of monetary policy.Reacting to this, the forint weakened further, to EURHUF 325-326 promptly. And then, quite unusually, a second statement came from the MNB, in which they explained that they do not think the current loose stance of monetary policy could be maintained throughout their whole forecast period (= throughout the next two years), and that their phrase used in the communiqué that the MNB will increasingly focus on its primary target (inflation) means an increased preference to inflation matters over anything else, now that inflationary risk has increased. Following this, the forint strengthened back to EURHUF 321-322.Curiously, Portfolio.hu presented the second statement as if it had been some kind of a correction of the communiqué, saying that it was a strong message sent to markets. We did not find this very convincing, in a great part because the second statement, which was in fact a reaction to q...