No policy change out of today's Monetary Council meeting.

HUNGARY - In Brief 26 Jan 2021 by Istvan Racz

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The regular monthly rate-setting meeting of the Monetary Council today has resulted in a no-policy-change decision. Moreover, there has been very little novelty in the Council's statement as well, as that mostly repeated, or referred to, the MNB's recent statements, actions and predictions. All this has been completely unsurprising. Maybe the only part of the text that appeared to be relatively and partially new was that as the acute phase of the Covid-related liquidity crisis has been passed, the Bank is now shifting its focus away from the up-to-5-years collateralized loans extended to banks and is putting more emphasis on its direct purchases of government bonds (of which it has carried out over HUF1100bn since last May). The MNB is preparing to extend its bond purchases to series below 10-year maturity, to secure an appropriate level of liquidity in the medium-term segment of the yield curve.On inflation, the Council said that the Bank's December forecast still appears correct: the headline rate is going to move up temporarily to 4% in spring, on a further rise of excise taxes on tobacco products and on various base effects. The average level of CPI-inflation is likely to reach 3,5-3.6% this year.The Council has stressed the importance of a cautious interest rate policy, meaning in practice no cut in the 0.6% base rate and maintaining a difference between the base rate and the 1-week deposit rate for the time being. It referred to the previously announced HUF400bn increase (to HUF 1150) in its program to buy enterprise bonds, adding that all liquidity generated through that program will continue to be sterilized.