Today's Monetary Council reflected a somewhat awkward situation

HUNGARY - In Brief 22 Sep 2020 by Istvan Racz

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In the first place, this was present in the revised numbers of the MNB's macro forecast, as today's rate-setting meeting was one to discuss the quarterly inflation report, the details of which will be made available on Thursday this week. The Bank's GDP growth forecast for this year was cut very sharply, to -5.1% to -6.8% from the previous positive 0.3-2%, which was the forecast released just three months ago. On the other hand, the annual average CPI-inflation forecast for 2020 was raised to 3.4-3.6% yoy from June's expectation of 3.2-3.3%. Against this backdrop, what the MNB has said on prospects for 2021 seems to have only limited relevance. The problem is not so much that anyone would have any problem with the new forecast levels, but that the revision of the forecast on growth and inflation is sending out conflicting messages. Fair enough, the MNB has not said that its sharp downward revision of the GDP forecast would require any loosening of policy, yet the normal expectation would still be something like that if that forecast is anything to be taken seriously. Adding to that feeling, the MNB has just reinforced its quantitative policies by raising its program for buying corporate bonds to HUF 750bn from the current HUF 450bn (over an undetermined period), with the primary explanation that the program is so much in demand.Well, so far this would be nice and clear-cut, but unfortunately current inflation is too high and the forint appears just too weak, despite a major intervention through reverse FX swaps on September 18, when the Bank sold EUR 575m to domestic banks. It has been largely everyone's feeling, even though the MNB has never said expressly of course, ...