Policy Tools Reduce HUF Liquidity of Banking Sector in Oct

Banking

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Sterilization instruments rolled out by central bank policymakers in October caused forint liquidity in the banking sector to narrow during the month, data released by the National Bank of Hungary (MNB) on Tuesday show.

MNB raised lenders' mandatory reserve ratio to 5% from 1% from October 1. The central bank also launched regular auctions of discount bills and tenders for variable-rate deposits early in the month in an effort to soak up banking sector liquidity. In the middle of October - as the forint reached historical lows - MNB suspended regular auctions and tenders for the two instruments, along with tenders for its one-week deposit facility, and launched daily tenders for fixed-rate O/N deposits, at a rate of 18%, well over the 13% base rate.

The monthly data released on Tuesday show average stock of the variable-rate deposits - for which two tenders were held - reached HUF 2.066 trillion in October.

With the suspension of the one-week deposit tender, average stock of the instrument fell by HUF 6.833 tln to HUF 2.279 tln, while O/N deposit stock rose by HUF 857 bln to HUF 2.044 tln.

The new reserve ratio lifted average reserves to HUF 2.89 tln in October - HUF 163 bln over the requirement - from HUF 408 bln in September.

The data show average stock of currency in circulation edged down HUF 4 bln to HUF 8.322 tln in October.

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