Yes, but what the hell did the MNB do yesterday?

HUNGARY - In Brief 19 Sep 2018 by Istvan Racz

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Analyst views on what exactly the MNB did yesterday seem to differ significantly, depending on who one is talking to. This is not necessarily the fault of respondents, but much more the problem of the significantly overburdened and not entirely coherent system of policy tools maintained by the MNB. The good news is that this system may become somewhat more simple from now on, although yesterday's message was not entirely clear in this regard.Anyway, we are trying to give here a reasonable summary of what actually happened:- The MNB maintained its interest rates and essentially also its inflation forecast, stressing, just as so far, that CPI-inflation will likely reach its 3% target level on a sustainable basis around mid-2019. This stresses no change at all in the MNB's policy stance, i.e. the continuation of the MNB's lately typical genuine policy looseness.- They will remove the 3M deposit facility by end-2018. No policy significance at all, except for sorting out the somewhat shameful situation that the MNB's so-called base rate is currently based on a facility that has been long degraded to completely insignificant.- Discontinuation of monetary-purpose interest-rate swaps by end-2018. This is in earnest justified by the fact that this instrument has not reached its purpose, i.e. efficiently holding back long-term yields from rising higher, whereas it is very costly and accumulates much of risk into the Bank's balance sheet. This is a tightening step anyway, as it will lead to higher LT yields, support the forint and increase the domestic financial savings ratio, even if indirectly (as households buy bonds with administratively set coupon rates, but sooner or later ...