In the current extraordinary economic circumstances, the Magyar Nemzeti Bank’s mandate is still to achieve and maintain price stability, to preserve financial stability, as well as to support the Government’s economic policy. Consistent with this, mitigating the effects of the coronavirus pandemic on the real economy and financial markets and creating the conditions for restarting the economy have become the MNB’s key priorities. The MNB has recently responded to the emerging challenges by taking a series of coordinated measures, which will be complemented by additional actions to address the latest developments in money markets, the government securities market and the real economy. In particular, the MNB has adjusted its policy instruments and modified its operational framework. These changes will allow the MNB to provide liquidity to the major sub-markets and to influence monetary conditions in a targeted manner.

At its current meeting, the Monetary Council decided to make the interest rate corridor symmetrical. The Monetary Council left the base rate and the overnight deposit rate unchanged at 0.9 percent and -0.05 percent, respectively, and raised the overnight and one-week collateralised lending rates to 1.85 percent. The one-week deposit rate is currently still equal to the 0.9 percent base rate; however, the Monetary Council decided to allow the interest rate on the instrument to deviate from the base rate upward or downward within the interest rate corridor. The Bank will set the interest rate on the instrument each weak, at the time of the actual tender’s announcement.

The Monetary Council also decided to launch a government security purchase programme in the secondary market to restore the stable liquidity position of the government securities market, and to relaunch its mortgage bond purchase programme to improve the long-term supply of funding to the banking sector. Details of the programmes will be published later.

Consistent with the changes to the MNB’s monetary policy instruments, from the second quarter of 2020 the Council will not set a target amount of banking sector liquidity to be crowded out of the instruments bearing interest at the base rate. By changing its policy instruments, the MNB has increased its room for monetary policy manoeuvre, so as to be able to address money market challenges in a flexible and timely manner.

To ensure access to required, affordable funding for domestic small and medium-sized enterprises available for a wide variety of purposes, the Monetary Council will launch the Funding for Growth Scheme Go! on 20 April 2020, raising the current allocation amount by HUF 1,000 billion. Including HUF 500 billion undrawn under the FGS fix, the MNB will make available up to HUF 1,500 billion of cheap and stable source of lending to the SME sector under the FGS Go!.

The new Scheme is identical to the earlier phases of the FGS in terms of its key parameters and the method of implementation. The MNB will continue to provide refinancing loans to credit institutions at a zero interest rate, and interest to be paid by SMEs will continue to be maximum 2.5 percent. Investment loans (including leasing) will still be available; however, in order to secure the financing of protracted investment projects with a slower payback period, the maximum maturity of refinancing loans will be set at 20 years. To ensure the liquidity needs of enterprises, it will be possible to provide working capital loans, with a wide range of purposes for maturities up to three years. In addition, debtors will have the chance to redeem earlier loans, in order to reduce their debt service burden. To preserve the stability of larger participants of the SME sector, the maximum amount of loan available for an SME will be HUF 20 billion. The time for banks to make credit decisions will be limited to two weeks, in order to ensure that funding is made available for companies as soon as possible.

After the last crisis, the FGS has played a crucial role in avoiding a credit crunch and turning around the declining trend in lending to SMEs since 2013. The central bank transforms and extends the Scheme this time with the same view: to provide SMEs with the necessary funding and prevent credit market disruptions. The FGS has become a very popular and well-known credit product to SMEs and financial institutions in recent years; therefore, it may remain a key instrument to satisfy changed demand for loans in the coming period.

The total amount available under the Bank’s corporate bond purchase programme, the Bond Funding for Growth Scheme, will remain unchanged at HUF 450 billion. Half of the total amount has been utilised, and as a result, over HUF 200 billion is still available for the MNB to purchase bonds issued by non-financial corporations headquartered in Hungary. Although the amount available under the Bond Funding for Growth Scheme is currently sufficient, the MNB may help increase liquidity further in the corporate bond market by modifying certain conditions of the Scheme.

Raising the Bank’s maximum amount of exposure to a given group of corporations from HUF 20 billion to HUF 50 billion will help the corporate sector rely more on other methods of funding as an alternative to bank loans. Increasing the maturities of securities eligible for purchase under the Scheme from 10 years to 20 years will create the opportunity to provide the corporate sector with sustainable, stable and long-term funding, similarly to European competitors.

The Bank will sterilise the additional money created under the FGS Go! and BGS using the preferential deposit facility. As a result, the schemes are expected to have a neutral effect in terms of monetary policy. To encourage credit institutions to maintain their lending activity despite growing credit risks, the preferential deposit facility will bear tiered interest for a transitional period beginning from 4 May 2020 until the end of June 2021, in line with the Monetary Council’s decision. The MNB will pay an interest rate of 4 percent, higher than the base rate, for additions to the stocks of loans and bonds made after 7 April 2020 under the FGS Go! and the BGS.

The Magyar Nemzeti Bank assesses continuously the incoming data and prospects in this volatile environment. In line with its statutory mandate, the Bank will use every instrument at its disposal to achieve price stability and to support the Hungarian economic and financial system.