MNB international reserves to drop without increasing vulnerability

MNB

The National Bank of Hungary (MNB) estimates that its international reserves could drop by as much as €10 billion from their current level to €22 bln by the end of 2017, MNB director Mihály Hoffmann told journalists while presenting a two-year outlook on reserves and liquidity today.

The MNBʼs sterilization stock could drop from about HUF 4 trillion to HUF 1 tln as a result, Hoffmann said.

The aim is to draw banksʼ liquidity away from the central bank and into instruments accepted as coverage, primarily government securities, as well as to lending, mainly to SMEs, he added.

The drop in the reserves will not increase vulnerability as the countryʼs short-term debt is projected to drop from its current level of about €22.5 bln. Short-term debt will drop less than the reserves, but the decline will be significant enough to keep it well below the reserves, Hoffman said.

The phasing out of retail FX loans, which involved the repayment of banksʼ external, mostly short-term resources, supports the parallel reduction of the reserves and short-term debt.

An MNB program dubbed REPHUN for (re)purchasing FX bonds issued by the State of Hungary serves the same goal, Hoffmann said. The MNB is mainly buying bonds that expire in the short term under the program launched in June of this year, he added. The stock bought under REPHUN is a little over HUF 200 bln.

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