No policy change from the MNB today, with a little footnote

HUNGARY - In Brief 22 Oct 2019 by Istvan Racz

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The October rate-setting meeting of the Monetary Council, held today, did not produce any change in interest rates and other MNB policies, or in the evaluation given by the Council's post-meeting statement. This was just as expected: indeed, it would have been rather surprising if the Council changed their quarterly assessment published only a month ago.In the communiqué, the Council one again saw asymmetric - more downward than upward - risks in their inflation outlook, mainly due to the weakening of the European economic cycle. They blamed September's rising adjusted core inflation on the telecommunications sector alone, indirectly hinting that there was an outstanding datapoint in that latter case.A little footnote is due to be given on a HUF50bn net sale of FX swaps at yesterday's auction, as a result of which the outstanding stock of the latter will grow to HUF2074bn on Thursday. A part of the local media commented this as a sign that the MNB loosened policy further. We think that the latter is not immediately evident. In fact, yesterday's FX swap auction came right after one of the most important tax payment dates of the year, most notably the quarterly VAT payment date, on October 20. Liquidity is normally very low in these days, and so the MNB can do little else than generate some more to compensate the banking sector for that effect. On October 21, i.e. the day when the auction was held, unsterilised excess liquidity, the aggregate on which the MNB set a HUF300-500bn target for the Q4 average stock last month, fell to just HUF109bn and the sterilisation ratio jumped to an unusually high 81%. The latter is a temporary effect of course, as liquidity tends to ris...