The Magyar Nemzeti Bank (MNB) made a surprise announcement via local press on April 3 that it would hold an extraordinary meeting of the Monetary Policy Council the following day. The news spooked a market braced for the introduction of unorthodox policy from the new head of the central bank.
The forint had gradually appreciated through the morning session, and approached the important HUF300 to one euro threshold, on the back of brighter news on the government's fiscal position in recent days, as well as technical factors. The (relatively) conservative 25-basis-point cut in interest rates stemming from Gyorgy Matolscy's first MPC meeting in the governor's seat last week helped the currency remain firm. However, the announcement of the meeting sparked a sell-off, as the market worries that the architect of much of Budapest's erratic economic policy since Fidesz came to power in 2010 is set to apply his logic to monetary policy and banking regulation.
Analysts at Capital Economics put it plainly. "The extraordinary MPC meeting... could see the introduction of the unconventional monetary policies that many (including ourselves) had expected to be announced at last month's regular meeting, but which did not happen," they write in a note.
Top of the list of concerns is that Matolscy could inflict further pain on the banks by forcing them to ease the foreign currency debt load of Hungarian households and businesses. As bne reported last month, that issue is now the final brake on the government's increasingly aggressive policymaking towards foreign investors. At this stage the statement from the MNB has only revealed that the meeting will discuss measures to promote "credit expansion".
"It is not clear whether new policies to boost lending and ease the debt burden on households and businesses will be announced, but if so three measures are possible," Capital Economics suggests. "First, the MNB could announce a "funding for lending" style scheme, which would provide cheap (local currency) finance to banks on the condition that they increase their lending to households and businesses. Second, the MNB could use a portion of its forex reserves to help banks that are struggling to roll over foreign-currency liabilities. Finally, and most radically, a new programme to restructure private sector foreign currency debts could be unveiled."
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