Making sense of Hungary’s new policy rate

The National Bank of Hungary is due to introduce a new benchmark monetary policy instrument tomorrow. While this is unlikely to have any impact on domestic monetary conditions, policymakers have argued that it will go some way to reducing some of the country’s financial vulnerabilities. We’re not so sure. While the new instrument might facilitate a shift in the make-up of government debt from foreign currencies to local currency, the overall debt burden – both in the public and private sectors – will remain relatively high.