1-week depo rate unchanged at 4.3% today

HUNGARY - In Brief 17 Feb 2022 by Istvan Racz

---

This note is just to keep things in order. The 1-week depo rate (= the effective sterilisation rate) was kept by the MNB unchanged at 4.3% for today's tender. This is no great story, as they said last month that they would raise the depo rate only once a month from there onwards, ideally right on the Thursday following the rate-setting meeting, which is held on Tuesdays, so next time in a week from today. Unless the market (mean the EURHUF exchange rate) forces them to act more frequently, they added. But right now, with EURHUF safely between 355-360, things look OK momentarily.Once again, no great story, except that today, no less than HUF10761bn of HUF liquidity went into the 1-week deposit facility. This was very substantially above the HUF7508bn taken in to the facility on December 16, at the time when the MNB announced to end all of its QE policies. But how come banking sector liquidity jumped by so much if there is no quantitative easing any more? Well, the key part of the explanation, though not the only factor, is that since mid-December, the central government must have spent a very substantial amount out of its vast cash reserves, formerly held as deposits with the central bank. This is why the MNB now has to pay a frequently increasing interest rate on an increasing amount of banking sector liquidity, until the latter is swept away by a BOP deficit or anything else that we could not name at this moment. This is not a short-term problem maybe, but it may be still time for the MNB to start to watch its balance sheet...Anyway, we still expect a 50 bps base rate hike and a 30 bps 1-week depo hike for next week, on the assumption that (hopefully) no one starts a ...