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Monetary policy instruments

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The statutory mandate of the Magyar Nemzeti Bank (MNB) is to achieve and maintain price stability, preserve financial stability and support the Government's economic policy. Monetary policy instruments are those used by the central bank in the practical implementation of monetary policy. During the development and operation of the toolbox, the MNB strives to ensure that the toolbox used supports the implementation of monetary policy and, in particular, the central bank's interest rate policy.

In accordance with its mandate set out in the Central Bank Act, in the extraordinary macroeconomic environment caused by the coronavirus epidemic, the MNB considers it a priority to mitigate the negative real economic and money market consequences caused by the epidemic and to lay the foundations for resuming economic growth. The MNB responded to the challenges with a coordinated series of steps in the spring of 2020, and restructured and expanded its monetary policy tools. The changes will enable the MNB to provide the necessary level of liquidity and establish the appropriate monetary conditions in a targeted and flexible manner in the sub-markets important to it.

The reorganization of the instruments in spring 2020 was motivated by three objectives: (1) maintaining price stability and ensuring adequate liquidity in the banking system and financial markets in line with financial stability; (2) more flexibility of short-term yield levels in response to the negative money market consequences of the coronavirus; and (3) the MNB should be able to shape and influence directly and in as many relevant markets as possible the long-term yields, the importance of which has appreciated in recent years.

The range of possible instruments of the central bank is regulated by Act CXXXIX of 2013 on the Magyar Nemzeti Bank. The potential toolkit includes all central bank instruments that the MNB may apply under the current Central Bank Act. The business toolkit is the set of all instruments for which the MNB has a developed and valid system of terms and conditions or a central bank decree in force. The applied toolkit includes the part of the business toolkit for which transactions between the MNB and its counterparties take place continuously or occasionally.

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