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The prospects for Hungarian monetary policy will also be discussed at the Budapest Economic Forum conference.
Surprisingly, the MNB raised the interest rate on one-week deposits by 15 basis points to 0.75% last week, corresponding to an effective monetary tightening. At that time, the measure was justified by the inflation outlook and the market expected a further adjustment. So far this has not happened, the rate of 0.75% will remain in today’s tender.
Just before the one-week interest rate announcement today, Barnabas Virág told Reuters this morning. The MNB deputy governor emphasized that the central bank remained committed to maintaining price stability despite the coronavirus epidemic. According to him, the biggest risk for inflation is the recurrence of risk aversion in emerging markets, as has been the case in recent weeks.
In any case, the MNB wants to prevent the uncertain global environment from increasing inflation risk through any channel.
– Flower stressed to the news agency topic.
According to the governor of the Central Bank, the increase in the deposit rate to one week last week was the necessary response by the MNB to the growing aversion to risk. He added that this tool continues to provide a rapid response to possible market developments. At the same time, predictability and market expectations are important for one-week interest rates.
The MNB is ready to take the right action with the right tools if the inflation outlook warrants it.
Barnabas Virág said.
Regarding the purchase of MNB assets, the vice president emphasized that they are preparing for a long-term presence in the bond market due to the slower than expected economic recovery. The device is ready to be adjusted, the 33% limit is not set in stone for a series. According to the vice president, the program will be reviewed before the initial limit of HUF 1,000 trillion is reached.
The vice president also spoke that inflation in September could still be around 3.9% and then fall below 3.5% by the end of the year. And it would be premature to say how the coronavirus will affect the fundamentals of inflation.
According to the words of Barnabás Virág today, the MNB begins to identify one of the alternative routes indicated in last week’s inflation report. At the time, it was written that the rise in emerging markets risk aversion in the case of an alternate trajectory would be greater than the forecast for the base trajectory. “If risk aversion in emerging markets intensifies, volatility in money and capital markets may increase. As a result, currency and bond markets in emerging economies that are considered riskier may come under selling pressure, which which leads to higher yields and a fall in the prices of national assets in the most vulnerable regions, which projects a path of higher inflation through the increase in the prices of imported products ”, writes the MNB. materializes, the MNB will respond with tighter monetary conditions, according to last week’s inflation report.
Barnabás Virág’s words can also be seen as a verbal intervention, as his words related to emerging markets risk taking may suggest that a further significant weakening of the forint would jeopardize the inflation target. That is why he affirmed that the MNB is willing to undertake the fight against this by all means. After the statement, the forint also started to strengthen against the euro, holding at 360.
Cover image: Getty Images
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