The MNB will start to buy corporate bonds in July

HUNGARY - In Brief 30 Apr 2019 by Istvan Racz

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Pretty much as we predicted yesterday (and others slightly earlier), the Monetary Council left all MNB interest rates untouched today, in addition to saying nothing new about the prospective use of FX swaps to tighten liquidity. Moreover, they made absolutely no mentioning of any need to tighten monetary policy. They acknowledged the continued tightness of the domestic labor market but stressed the weak European cycle and the apparent hesitation by the ECB to tighten policy. Curiously, they said they are not too much worried about the March CPI figures: the headline rate was pushed up by fuel prices, core inflation was boosted by higher excise taxes imposed on tobacco, and adjusted core inflation was raised by 'some volatile items in industry'. They repeated that adjusted core inflation is likely to rise further until this autumn, to be followed by a decline from late 2019.By the way, average net wages rose by 11.4% yoy in the first two months of 2019, essentially unchanged from last year's rate of expansion, and the broadly defined unemployment rate (the one regarding participants of social employment programs as unemployed) fell to 6.2% on average in Q1, from 6.4% in Q4 and 7.4% in Q1 2018. These facts were not mentioned in the MNB statement.Perhaps more interestingly, though not at all unexpectedly, the MNB published the detailed rules for its program to buy corporate bonds today. According to this, the Bank will start to buy 3-10 year HUF-denominated bonds, issued by local non-financial enterprises (which can be subsidiaries of companies based elsewhere in the EU), up to a total of HUF300bn from July 1. The Bank will buy up to 70% of any series in total or up to 50...