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Free forint liquidity rises further on large government bond repayment, drop of fx swaps in April

The free forint liquidity of Hungary's banking sector rose in the third month in a row in April after shrinking in the previous three months, mainly on a large forint government bond repayment, the National Bank of Hungary (MNB) said in its monthly report based on its statistical balance sheet on Thursday.

The drop of the foreign exchange swap stock of credit institutions also continued. Banks significantly reduced their one-day deposits with the MNB. in April, and excess liquidity pushed the stock of the two-week MNB bonds, the central bank's main liquidity management instrument, to a new peak. Domestic entities bought and foreign investors sold the MNB bonds last month.

One-day interbank rates were around the bottom of the MNB’s interest rate corridor in the first and last third of April but neared the top of the corridor in the middle of the month when banks bought MNB bonds partly at the expense of their mandatory reserve obligation, probably expecting, wrongly, a central bank rate cut. On average, over-reserving was somewhat bigger than usual, similar to the previous few months.

The average stock of fx swaps fell HUF 110.4 billion similar to the decrease in March, to HUF 111 billion in April. The average stock more than doubled between October and January it peaked at HUF 584billion. The stock fell to below HUF 100 billion in April-May last year, before rising again. The NBH introduced the fx swaps to ease a liquidity shortage late 2008 and early 2009.

Despite a large forint bond expiry (of HUF 406bn), the average stock of central government deposits rose HUF 334 billion in April after a HUF 147 billion rise in March to HUF 1,566 billion in April 147 billion. The proceeds of a $3.75 billion foreign bond issue by the State of Hungary arrived at the very end of March, and a $500 million reoffering in April also raised the average stock.

End-of-month figures show that central government's foreign currency deposits fell HUF 238 billion in April after a HUF 519 billion rise in March to HUF 1,042 billion at the end of April. The state treasury's forint deposits rose HUF 152 billion in the meantime after an identical drop in March, and reached HUF 537 billion. The average foreign currency deposits include the drawn but unused part -- about €3 billion -- of the IMF-EU international loan package granted to Hungary during the 2008 autumn crisis.

The average stock of two-week National Bank of Hungary (MNB) bonds rose HUF 447 billion in April after a slight drop in March to HUF 4,535 billion surpassing the previous, April 2010 peak by HUF 81billion. After two months of increase, the average stock of bonds in foreign hands fell HUF 12 billion to 629 billion. The two-week bond holdings of domestic investors rose by a sharp HUF 459 billion after a limited drop in March, and averaged HUF 3,907 billion in April.

Money flew out of banks' one-day deposits in April after an increase in March, and the average stock fell HUF 112 billion to HUF 163 billion. One-day deposits jumped to almost HUF 300 billion their highest level since the autumn of 2009, in December.

Including the average foreign holding of the two-week bonds, the average stock of the MNB’s foreign liabilities fell further, by HUF 134 billion in April after a HUF 161 billion decrease in March. Helped by the foreign bonds' proceeds, average foreign assets of the central bank rose HUF 351 billion after a HUF 69 billion increase in March. Average foreign liabilities totaled HUF 819 billion and average foreign assets totaled HUF 9,769 billion in April.

The average balance on banks' current accounts with the MNB exceeded the mandatory reserve requirements by HUF 4.8 billion somewhat more than usual. Banks held on average HUF 442 billion on their current account in March, HUF 3.8 billion more than in February.

Average stock of cash in circulation fell by HUF 10 billion little less than in March, to HUF 2,312 billion. The drop was the fourth one in a row. The average cash in circulation declined twice, in March and in October, last year.