MNB to phase out two-week deposits by end-April


Photo by Jessica Fejos

The National Bank of Hungary (MNB) will phase out its two-week deposit facility, earlier its main instrument for sterilizing banking sector liquidity, by the end of April, the central bank said today, according to Hungarian news agency MTI.

(Photo: Jessica Fejos)

The MNB replaced the two-week deposits with a three-month, fixed-rate deposit last September but gave no timeframe for phasing out the former.

The MNB said today that its policy makers had decided to gradually terminate the two-week deposit ā€œto ease monetary conditions and provide an additional boost to the Self-Financing Programā€, a scheme that aims to draw banking sector liquidity out of central bank facilities and into government securities.

Adjusting to the change is likely to result in banksŹ¼ purchase of HUF 400-800 billion in government securities, it added.

The current HUF 1 trillion maximum allotment for the two-week deposits will remain in place until the end of March, after which time it will be gradually reduced to zero by the end of April.

The MNB also said it would raise the amounts by one-fifth at interest rate swap (IRS) tenders it launched in the summer of 2014.  

The IRS tenders were introduced with the aim of boosting banksŹ¼ incentives to buy government securities.

The MNB noted that, since the tenders were introduced, IRS transactions worth more than HUF 1.3 tln had been made and that banksŹ¼ holdings of government securities had risen by over HUF 2 tln.

The demand by banks for government securities that the measures are likely to produce could drive down long-term government securities yields further, resulting in looser monetary conditions at the long end of the yield curve, the MNB said. The MNBŹ¼s balance sheet and sterilization stock is expected to be reduced further, while efficiency improves and turnover increases on the interbank market.

"With the termination of the two-week instrument after 17 years, the reform of the [MNBŹ¼s] instruments will be completed and an optimal set of monetary policy instruments will develop, corresponding to the current size and structure of the BankŹ¼s balance sheet," the central bank said.


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