The National Bank of Hungaryʼs (MNB) international reserves fell €2.6 billion to €32.1 bln in the third quarter, but were still well over the countryʼs short-term external debt, a quarterly report by the central bank released yesterday shows.
As Hungaryʼs gross short-term debt stood at €21.7 bln at the end of Q3, the international reserves well exceeded the 1:1 ratio prescribed under the Guidotti-Greenspan rule, the MNB noted in the Balance of Payments report.
The international reserves fell about 7.5% during the quarter on debt repayments by the state and the drawdown of swaps related to a conversion of retail FX loans into forints.
The short-term debt dropped €2.1 bln or around 10% as banksʼ debt fell some €2.2 bln on the FX conversion to €8.2 bln at the end of September. Non-financial companiesʼ short-term debt also dropped by nearly €300 million, to €5.8 bln, but the short-term debt of the general government rose some €633 mln to €6.3 bln.
The short-term debt accounted for 26% of Hungaryʼs total €83.5 bln of gross external debt at the end of the period.
The MNB noted that short-term external government debt could peak at a far lower level than thought earlier because of foreign selloffs of government papers due to regulatory incentives to move banksʼ liquidity into forint government securities as well as central bank purchases of FX government bonds on the secondary market and advance repayment of European Investment Bank credit.
FX transactions, including the EIB loan repayment, cut the international reserves by €1.2 bln in Q3. Banks drew down €900 mln from the MNB in the quarter, including €300 mln for the conversion of the retail FX loans and €600 mln for maturing or closed swaps related to the conversion.
The MNBʼs FX bond purchases, FX transactions of the State Treasury and revaluations also reduced the reserves in Q3. These effects were only partly offset by the inflow of EU funds which raised the reserves by €500 mln.