The MNB today: No to rate cuts, yes to quantitative easing

HUNGARY - In Brief 25 Aug 2020 by Istvan Racz

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At its regular monthly rate-setting meeting, the Monetary Council kept all its interest rates unchanged, but announced to raise the Bank's weekly purchases of government bonds to HUF 40bn from the HUF 10-15bn implemented recently. Just as most lately, the MNB intends to buy bonds with more than 10 years maturity, and it also intends to support domestic banks' purchases of government bonds with maximum HUF 30bn of new long-term collateralised loans on a weekly basis.Following the Council's meeting, vice governor Virág told the press that they see no further room for cuts in the Bank's short-term rates, a clear indication that the Bank is concerned about inflation and it does not want a weaker forint. On July's unexpectedly high inflation / core inflation numbers, he said that they were pushed up by various one-time factors, including a 0.4% addition to the headline rate by higher excise taxes on tobacco and fuels. Over the next few months, he said, inflation will remain similarly high but it will start to decelerate towards end-2020, due to base effects.Prior to today's Council meeting, the Finance Ministry said yesterday that this year's fiscal deficit will likely be much higher than the so far targeted 3.8% of GDP or the 3.8-4.6% range set by the main scenario and two risk scenarios, as laid down in April's annual convergence program update. The new forecast for the ESA-2010 deficit is 7-9% of GDP. The Finance Ministry specifically said that its new forecast is pretty much in line with the general expectation of EU governments on this year's national fiscal deficits.Raising the official fiscal deficit forecast (we would not use, just as Ministry speakers do not do, th...