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Economy Ministry Dismisses Central Bank Comments Re. Reference Rate

HUNGARY
  • Bloomberg headlines have just crossed wires, stating that the Hungarian Economy Ministry has dismissed central bank comments from earlier today re. the use of BUBOR as a reference rate. The Ministry states further that they are in talks with banks on a reference rate, and that a swtitch would cut corporate loan rates.
  • EURHUF saw an immediate uptick on the headlines, though the cross is still some way off today’s earlier highs. As a reminder, the proposed reference rate to be used by lenders is the yield on Hungarian T-bills with a 3-month maturity. Those reference yields are ~2ppts lower than the 3-month BUBOR rate (9.40%) and would therefore represent a relatively significant effective easing step.
  • The central bank said earlier today that proposals like replacing BUBOR harmfully narrow room for policy manoevure.
  • The latest set of comments are further evidence of disharmony between government officials and the central bank. Last week, Prime Minister Orban urged the NBH to reduce interest rates in a bid to spur economic growth, stating that he does not fear reflationary risks. Government interjection into central bank matters have provided a headwind to the HUF in the past.
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