The Hungarian Central Bank (MNB) announced that it had signed an agreement on repurchase transactions with the European Central Bank (ECB) by which the ECB will provide it with a facility to borrow up to €5 billion to support the MNB's open market operations designed to raise liquidity in the domestic foreign exchange swap market.
BNP Parisbas director of interest trading György Cselényi told MTI that the agreement should serve to calm currently agitated markets.
Cselényi added that the MNB should also take a direct role in raising liquidity, ensuring financial instruments for at least one to three months rather than the current one day. Cselényi remarked that it would also be important for the MNB to sharply raise interest rates in order to make the forint less vulnerable to attacks stemming from the difference in yields between the bond market and interest transactions.
Budapest Alapkezelő fund manager Péter Duronelly told MTI that “markets are reacting in an unexpected and surprising way,” thus the effect of Thursday morning's MNB-ECB agreement is unpredictable.
K&H Bank analyst György Barcza said that the MNB-ECB agreement should have a positive effect over the short term, though several other measures, such as changing Hungary's current macroeconomic trajectory, would be necessary in order to reduce the country's need for foreign-currency loans. (MTI – Econews)