MNB sterilisation rate unchanged today, the third time in row

HUNGARY - In Brief 14 Apr 2022 by Istvan Racz

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Today's MNB deposit tender has been the third consecutive occasion that the Bank left the fix interest rate, at which it mops up all the free and willing HUF liquidity of banks for the following week, unchanged at 6.15%. As the forint has been conveniently trading within the EURHUF 375-380 range most lately - most of the time close to 380 but a little bit stronger today - this (in)action from the Bank has provided another piece of hard evidence that the MNB's line of defence has been shifted to EURHUF 380, from the 370 level practically held between early November and late March. This ten-unit difference in terms of EURHUF puts about HUF300bn of net worth back into the MNB's balance sheet, in addition to saving the not negligible extra interest the Bank would have to pay on the HUF10358 bn stock of sterilised funds pulled into the 1-week depo instrument today.Should anyone say that direct costs should not be a crucial aspect when monetary policy decisions are made, yes, he/she is completely right, provided that you have a very strong balance sheet of the central bank and/or an abundance of fiscal means. In addition, a somewhat weaker forint implies somewhat stronger growth and especially more nominal income, implicitly meaning a higher tax base and more fiscal revenue. Still in addition, rising interest rates could lead to financial stability problems if borrowers of bank loans become unable to service debts. In particular, the existing administrative interest rate stop measure, which has set the maximum interest rate that can be collected by banks at the end-October 2021 level for mortgage loans, is going to end at end-June. The latter may be extended eventually, unde...