According to Nomura analysts, the step is expected to free approximately another HUF 200 bln to flow into the Hungarian government’s security market. “However, as HUF remains around 310 and with ECB QE extension on the way, we think that while the amount of money flowing out the curve remains low, the MNB will take additional steps including further quantity restrictions on access, greater duration swap discounts, possible base rate cuts and removing remuneration of required reserves . Our bias remains to be short HUF,” the announcement says.
Nomura says that the central bank “seems to have been implementing a continual series of easing measures, the last of which was the O/N deposit rate cut two weeks ago – moving from 0.35% to 0.1% and in the process removing the floor that was under the front end of the government curve. The intention to achieve the policy aims of lowering government funding costs, boosting growth and weakening the currency is clear to us – but the success of these is slow.”
Nomura’s analysts say that there is a “deep residual legal and logistical uncertainty” within local banks about their ability to keep up with the central bank’s activities. Therefore, “they have been slow to take up the duration swaps out to 10yr and have been slow to move beyond the very front end of the government securities curve (bills). The MNB is struggling to overcome this even in state-owned banks.”
At its non rate-setting meeting on Tuesday, the MNB “took another step … by adjusting the reserve rate requirement regime”, Nomura says. “The previous set-up was complex but, put simply, banks could set the level of reserves they wanted to hold between 2% and 5%. The MNB will now restrict banks to holding a maximum of 2% reserves at the central bank (at the base rate),” the announcement added.
Nomura said believes it is important to keep monitoring the MNB balance sheet as the “reserve account is currently around 15% of total bank funds held at the MNB and this move may free up around HUF200bn maximum that can flow into other instruments like the 3m depo or more likely into government securities at the front end.”
Producing journalism that is worthy of the name is a costly business. For over 30 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.
