Hungarian monetary policy likely to remain dovish

The Hungarian Monetary Policy Council has not altered its extra dovish stance, in spite of increased volatility and deepened risk aversion on global markets. Both the policy rate and O/N depo rate remained the same at 0.9 percent and -0.15 percent, respectively, in May. Furthermore, the tone of the council’s statement continued to be the same as well, in spite of the different and more turbulent financial market environment.

The central bank highlighted several times that they would carry on with mortgage bond purchases and the monetary policy interest rate swap facility as programs, continuously and for a prolonged period, noted Erste Group Research. This is because the central bank does not see any considerable inflation danger in the economy and would like to boost the economic growth by keeping the real interest rates at depressed levels.

The MPC wishes to sustain its control on both the short end and the long end of the curve. In order to keep a lid on short-term money market rates, the central bank has continued to pour forint liquidity onto the interbank market through its weekly FX swap tenders.

“The MNB is very unlikely to give up its extra dovish stance as long as the ECB's monetary policy remains accommodative”, added Erste Group Research.

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