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Markets digested a new MNB governor easily, Matolcsy says the MNB has to support economic growth

Markets digested a new MNB governor easily, Matolcsy says the MNB has to support economic growth

4.3.2013 10:56

On Friday, Hungary, and in particular its economic policy, again grabbed the spotlight, when Prime Minister Orban met expectations and appointed György Matolcsy – a member of the government and the Minister of the Economy – to be the new President of the MNB. Although Matolcsy had advocated certain unconventional expansive interventions into monetary policy in the past, the market reaction to his appointment was very moderate in the end. The reason is that, once being appointed, Matolcsy toned down his previous statements by labelling himself an enemy of inflation.

On the other hand, it is also true that his first appearance as MNB President (in Parliament) was not clearly conservative, as
would be appropriate for a new central bank governor. One of Matolcsy’s messages to markets was that the MNB policy also has to foster growth and, without providing a detailed specification, he cited the experience of the Bank of England and, somewhat surprisingly, that of the National Bank of Poland. Bear in mind that on Tuesday the MNB (still led by President Simor) met expectations and cut its rate by 25 basis points. Thus its base rate fell to 5.25%, the lowest level ever, which the bank had already set once before, in April 2010, when Viktor Orban became Prime Minister. Nonetheless, even though the rate is at all-time lows, the monetary easing cycle seems to be far from over.

The statement released after the decision on rates clearly indicates that the MNB does not currently see inflation as a risk; the bank is more concerned about very low domestic demand and its downside effect on inflation, and therefore believes that its inflation target may even be achieved with a more eased monetary policy than there is at the moment. In other words, it is evident that the MNB Board, which has been completely at the mercy of doves after its last hawk (outgoing Governor Simor) left the bank, will continue to cut rates.

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