While the Hungarian central bank pledged to maintain tight monetary conditions and high-interest rates, the economic development ministry capped interest rates for larger institutional investors, with some experts worrying the move may impede the efficiency of monetary transmission and hamper efforts to shore up Central Europe’s worst-performing currency.
On Tuesday, the National Bank of Hungary (MNB) left its base rate unchanged at 13% and pledged to maintain tight monetary conditions for a “prolonged period” as annual inflation was running at 21.1% in October and further “unpleasant surprises” could be on the cards in coming months, Reuters reported.
The central bank also reiterated its pledge to offer its new quick deposit tool at an 18% rate “as long as necessary” to cool down the economy.
However, its efforts may be hampered by a Monday decision of the Minister of Economic Development Márton Nagy, former deputy governor of the MNB, which said commercial banks in Hungary cannot pay an interest rate higher than the three-month discount bill yield, currently at 11.79%, on deposits by certain large institutional and private investors until March 31, 2023.
Nagy explained the step was aimed at investors who took advantage of high central bank rates by investing their money in central bank deposits through commercial banks.
Experts say few people are likely to understand what is happening, according to EURACTIV media partner Telex sources.
The move means certain large investors will not be able to access high-interest rates, which some experts predict may prompt them to switch to government bonds or leave the Hungarian forint market and switch to the euro or other foreign currencies.
According to Reuters, When asked about the government’s move, Deputy MNB Governor Barnabas Virág said there was no alternative to curbing inflation and the bank needed all channels of monetary transmission for that.
“With respect to yesterday’s decision, we need some time to see how it will impact individual sub-markets,” Virág added.
Source: euractiv.com
