MNB sets tight limit to 3M depos at tomorrowʼs tender

Telco

MNB headquarters in Budapest (Image by Jessica Fejos)

The National Bank of Hungary (MNB) has set a HUF 400 billion limit on the volume of three-month deposits available at the deposʼ monthly tender on December 21, the tender announcement on the MNBʼs website revealed on Monday afternoon, according to Hungarian news agency MTI.

The limit falls short of the HUF 436.8 bln in expiring three-month deposits, allowing no net placements at the tender.

The MNB cut the frequency of the three-month depo tenders to once a month from August and introduced a volume limit on them in October. The aim is to squeeze out money from the central bank, thus encouraging banks to lend and/or invest in government securities.

Meanwhile, the MNB has injected HUF 50 bln in new money into the banking system through accepting HUF 200 bln bids against HUF 150 bln expiries at a “fine-tuning” tender on Monday. This was in contrast with a week earlier when the MNB did not hold such a tender, thereby it let the HUF 200 bln swaps then maturing expire without a chance of renewal. 

As a result of the one fine-tuning tender and the two expiries, banks will hold HUF 200 bln through the fine-tuning swaps before Wednesday’s three-month depo tender, HUF 150 bln less than they held in November.

Demand was high for the EUR/HUF swaps at Monday’s tender. Bank bids totaled EUR 1.581 bln (HUF 493 bln), of which the MNB accepted bids worth HUF 200 bln or EUR 639 million. It offered EUR 500 mln (HUF 156 bln) of the swaps for a maturity of one month.

The MNBʼs latest weekly liquidity forecast indicated a liquidity shortage of HUF 260 bln for the week starting December 12 after a HUF 206 bln shortfall the previous week. The central bank announced in late September that, related to the volume limit it set to its main liquidity management instrument, the three-month deposit starting in October, it will operate, on a case-by-case basis, fine-tuning instruments to tackle considerable and persistent liquidity shocks.

The MNB injected HUF 400 bln extra liquidity for one month in the banking system at the first two fine-tuning tenders in October. In November it let banks renew HUF 350 bln of the October swaps for another month, and it limited renewals further, to HUF 200 bln in December.

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