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Free forint liquidity rises as fx swap stock, gov’t deposits drop in February

The free forint liquidity of Hungary's banking sector rose in February after shrinking in the previous three months, as the average foreign exchange swap stock of credit institutions and central government deposits declined last month, the National Bank of Hungary (MNB) said in its monthly report based on its statistical balance sheet.

The increase of forint liquidity caused a big rise in the stock of two-week MNB bonds, the bank's main liquidity management instrument, and the increase was only partially offset by a drop in banks' one-day deposits with the MNB.

One-day interbank rates were at the lower half of the MNB's interest rate corridor. Over-reserving was somewhat bigger than usual, similar to January.

The average stock of fx swaps fell HUF 246 billion to HUF 338 billion in February from an all-time high of HUF 584 billion in January. The fx swaps stock more than doubled between October and January. The stock fell to below HUF 100 billion in April-May last year, rose to HUF 464 billion in August, and, after a fall, it started to rise again in October. The MNB introduced the fx swaps to ease a liquidity shortage late 2008 and early 2009.

The average stock of central government deposits fell HUF 66 billion in February to HUF 1,084 billion after rising HUF 151 billion in January. The fall came after an unusually large fiscal deficit in February. End-of-month deposits rose, however, by HUF 67 billion to HUF 1,298 billion, including a HUF 65 billion rise in forint deposits, to HUF 537 billion, and a slight, HUF 2 billion fall in foreign currency deposits to HUF 761 billion. The latter deposits include the drawn but unused part of the IMF-EU international loan package granted to Hungary during the 2008 autumn crisis.

Excess forint liquidity boosted the average stock of two-week National Bank of Hungary (MNB) bonds by HUF 441 billion to HUF 4,101 billion. The average stock of bonds in foreign hands rose HUF 160 billion to HUF 621 billion (after dropping HUF 55 billion in January), and domestic investors raised their stock by HUF 281 billion in February (after cutting it HUF 66 billion) to an average HUF 3,480 billion.

The stock of banks' one-day deposits with the central bank dropped, however, by HUF 76 billion to HUF 140 billion. The one-day deposits fell now for the second month after jumping to almost HUF 300 billion, their highest level since the autumn of 2009, in December.

Including the two-week bonds, the average stock of foreign liabilities of the National Bank fell HUF 109 billion and foreign assets fell on average by HUF 191 billion. Foreign liabilities, excluding two-week bonds, fell HUF 269 billion to HUF 1,134 billion and foreign assets fell to HUF 9,349 billion.

The average current account balance of the banking sector with the MNB exceeded the mandatory reserve requirements by HUF 4.1 billion, somewhat more than usual.

Average stock of cash in circulation fell by HUF 28 billion last month to HUF 2,334 billion, the bank said. The drop was the second one in a row. The average cash in circulation declined twice, in March and in October, last year.