Hungary's central bank seeks to talk down easing expectations again

By bne IntelliNews May 10, 2016

The Magyar Nemzeti Bank’s (MNB) easing cycle may end this month, the Hungarian central bank’s deputy governor said on May 10.

Pushed by the fall back into deflation in March, as well as persistent appreciation of the forint, the the MNB moved to lower the benchmark by 15 bp to 1.05% on April 26, the second such cut in a row. However, the central bank warned investors against "exaggerated" expectations of monetary policy easing in early May, and now appears keen to talk down rate cut expectations even further.

“There could be one more step, further steps are doubtful,” Deputy Governor Marton Nagy said on May 10, according to While another cut on May 26 is pencilled in, the better-than-expected CPI reading in April could yet trim the length and depth of the easing cycle.

On the same day, Nagy also announced that the MNB will phase out interest rate swaps (IRS), which have been used to support purchases of forint-denominated debt by local banks. The last IRS tender will be held on July 7, the official announced.

The halt of the tenders comes as the MNB's "overhaul of its monetary policy toolkit has reached its goals," Nagy said earlier this month in an article published on It is notable that the MNB is now moving away from the unorthodox monetary policy tools its has been using over the past couple of years.

Some analysts suggest that is because Hungary has given up chasing a rating upgrade, and the baton on the bid to revive inflation has been passed to fiscal policy. Budapest has relaxed the 2017 deficit target by 0.4pp y/y to 2.4% of GDP for 2017. Others note that the MNB may be seeking to give the markets a jolt with a surprise rate cut in the near future, as recent easing has failed to rein in the appreciation on the forint.

The MNB launched it’s self-financing programme in 2014. It has worked hard to reduce Hungary’s vulnerability by improving the currency composition of government debt. However, the country continues to struggle to reduce overall debt levels, which remain elevated at around 75% of GDP.

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