MNB introduces unconventional tools to fine-tune liquidity

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Photo by Jessica Fejos

The National Bank of Hungary (MNB) will introduce two unconventional monetary policy tools to fine-tune banking sector liquidity as it limits placements in its three-month deposits, the central bankʼs main sterilization instrument, Hungarian news agency MTI reported on Friday.

The MNB will introduce a one-week deposit facility that pays interest level with the base rate to soak up liquidity as well as one-week, one-month and three-month forint swaps to inject liquidity into the market when necessary, two of the central bankʼs economists said in a paper posted on its website on Friday. 

“With the tools now being introduced, the MNB is able to manage liquidity shocks and shape liquidity processes efficiently, for sustained periods of time if necessary, which can contribute to a pickup in activity on the interbank market and the easing of monetary conditions with the use of targeted, unconventional tools,” the central bank said.

MNB policy-makers decided in September to cap the amount banks can place in the central bankʼs three-month deposits at HUF 900 bln in Q4. The MNB said at the time it expects HUF 200-400 bln to be crowded out of the three-month instrument as the result of the expected contraction of banking sector liquidity for the rest of the year due to autonomous factors and central bank programs.

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