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November 20, 2018

Hungarian Central Bank starts its own quantitative easing in January

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Hungarian Central BankThe Hungarian Central Bank, Magyar Nemzeti Bank, starts its own quantitative easing at a time when a number of major regulators, including the Fed, started to tighten monetary policy. The central bank has begun to buy mortgage bonds since January in an attempt to attract investors and to manage the interest rates. Now the regulator abandons the approach of most small countries to focus on short-term interest rates and inflation targeting. Now central bankers will try to influence long-term mortgage rates in Hungary, where the government is one of the most indebted ones in Eastern Europe.

The goal is to encourage growth that lags behind other economies in post-communist Europe as well as to prevent the recurrent excessive borrowing of foreign currency, which led to a rescue package by the IMF in 2008.

Nearly 10 years later, Hungary has struggled to stabilize the financial industry and to repel aggressive market speculators.

Expanding its unconventional arsenal, the Hungarian Central Bank will take interest rate risk from lenders within 10 years, beginning to sell interest rate swaps in January. The regulator is expected to redeem mortgage securities worth up to 500 billion HUF (1.9 billion USD).

The driving force behind the transformation of monetary policy in Hungary is Gyorgy Matolcsy, a former economy minister and close to Prime Minister Viktor Orban. He headed the central bank in 2013.

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