Hungary’s central bank eyes more unconventional monetary policy tools

By bne IntelliNews November 4, 2015

Hungary’s central bank plans to use more unconventional tools to further ease monetary conditions to support the slowing economy, Deputy Governor Marton Nagy said on November 4.

The statement comes just a day after the Magyar Nemzeti Bank (MNB) unveiled new measures aimed at kickstarting market-based lending. The central bank wants to phase out its cheap loan programme, which has been the main driver of credit to the economy over the past few years, but has been forced to extend it into next year due to weak lending growth from commercial banks.

Alongside a sharp drop in incoming EU funds, a lack of credit has helped undermine economic growth this year. Hungary is forecast to see growth ease to 3.2% in 2015, from 3.6% last year.

The Magyar Nemzeti Bank (MNB) will not cut its main policy interest rate further because the impact will be limited, Nagy said. The MNB ended its latest easing cycle in July, leaving the benchmark at a new low of 1.35%. It has since pledged to keep the rate at the current level, at least until the second half of 2017.

“MNB will shift its focus from the benchmark rate to non-conventional tools, as the latter are much more efficient and can be better targeted”, Nagy said.

The MNB’s non-standard measures will aim at boosting lending to small and medium-sized firms (SMEs) and bringing down yields on government debt, he said. The central bank would like to see an even flatter yield curve. In its view, the yields on long maturities are high, but yields on shorter instruments should also be pushed lower, the official said, according to Portfolio.hu.

The move towards unconventional monetary policy tools has already been signalled in recent months. The MNB's switch to a new main policy tool on September 23 was seen as a "quasi rate cut" by analysts. 

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