The key policy ratePrint
The key policy rate is set by the Monetary Council, as the central bank’s supreme decision-making body.
Between September 2015 and December 2018 the three-month MNB deposit was the key policy instrument of the Bank. During summer and spring 2016 the MNB started in two phases the restriction of the availability of the key policy instrument.
- Until August 2016 the Bank held weekly announced 3-month deposit tenders for counterparties. After that the MNB changed the frequency of tenders from weekly to monthly frequency (1st phase), which meant a time-restriction of banks’ access to the 3-month deposit facility.
- From tender held in 26 October 2016 a quantitative restriction was introduced (2nd phase). Monetary Council quarterly made decision about the extent of the restriction. In the course of this, the volume of outstanding deposits, which was as high as HUF 1,600 billion in autumn 2016, fell to HUF 75 billion by the end of 2017.
According to the Monetary Council’s decision made in 18 September 2018, the MNB phased out gradually the 3-month deposit facility in 2018 Q4. The last tender was held in 19 September 2018, therefore the stock of 3-month deposit fell gradually to zero until the end of 2018. The decision primary served the simplification of the set of central bank instruments and the enhancement of transparency; the number of instruments affecting short-term yields decreased while the measure didn’t materially change monetary conditions.
After the phasing out of the 3-month deposit, the minimum reserves and the preferential deposit will continue to bear interest at the base rate. The MNB’s instruments affecting short-term yields, i.e. the interest rate corridor and forint liquidity providing foreign exchange swaps, remain active parts of the Bank’s monetary policy instruments, and thus the Bank will be able to shape short-term yields efficiently even after the phasing-out of the 3-month deposit.
Since the reduction of the volume of the 3-month deposit to zero, the role of main policy instrument has been fulfilled by the minimum reserves.
The MNB shall pay interest equal to the central bank base rate on the average monthly balance of the bank accounts managed for credit institutions. In case when credit institutions hold less minimum reserves than required the MNB punishes credit institutions with penalty interest equal to the central bank base rate. In case when credit institutions hold more minimum reserves than required, the Bank punishes credit institutions - on the part above the amount corresponding to the minimum reserves - with an interest rate of 0 percent or the average monthly value of the current central bank O/N deposit rate calculated for the calendar days of the maintenance period, reduced by 15 basis points whichever is lower.