A moderate but important tightening step from the MNB today

HUNGARY - In Brief 08 Mar 2022 by Istvan Racz
Just as expected, the MNB used today's prescheduled non-rate-setting meeting to tighten further, in view of yesterday's big weakening of the forint. But the Bank did relatively little on this occasion: it raised the ceiling of the interest rate corridor, which is the interest rate for O/N and 1-week repos, by a full percentage point to 6.4%, leaving the base rate and the floor of the corridor, the O/N deposit rate, unchanged at 3.4%. This could have happened even in the absence of yesterday's major forint slide, given that the 1-week deposit rate, the effective sterilisation rate, was raised to 5.35% last Thursday, and so no room was left for any further tightening should the repo rate rate have not been adjusted.But anyway, raising the corridor ceiling may be enough for now, hinting at the potential of a further hike of the sterilisation rate at this Thursday's tender, as EURHUF fell back to 386 from today from last night's closing 394 level. The forint has been strengthening since early trade today, and it is not clear at this moment if the MNB intervened on the currency market to get that result. The MNB has confirmed recently that it does not comment on market interventions, and if they do intervene through an agent, it may be quite difficult to notice.As a matter of verbal intervention, the MNB did not say anything yesterday (understandably, as they do not speak, as a rule, immediately before Council meetings), but three key government figures, including finance minister Varga, foreign minister Szíjjártó and Márton Nagy, senior advisor to PM Orbán and former MNB vice governor all released comments. Mr. Varga said that the forint fell victim to anti-Russia sanction...

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