Investors braced for shocks from Hungarian central bank

By bne IntelliNews April 4, 2013

bne -

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."

Related Articles

Latvia’s Citadele Bank pulls IPO

bne IntelliNews - Latvia's Citadele Bank has postponed its initial public offering (IPO), citing “ongoing unfavourable market conditions”, the bank announced on November 11. The postponement ... more

BOOK REVIEW: “Europe’s Orphan” – how the euro became a scapegoat for policy ills

Kit Gillet in Bucharest - The euro, conceived as part of a grand and unifying vision for Europe, has, over the last few years, become tainted and often even blamed for the calamities that have ... more

Mystery Latvian linked to Scottish shell companies denies role in $1bn Moldova bank fraud

Graham Stack in Berlin - A Latvian financier linked to the mass production of Scottish shell companies has denied to bne IntelliNews any involvement in the $1bn Moldovan bank fraud that has caused ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss