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MNB: Insufficient foreign-currency reserves made IMF package necessary

  The National Bank of Hungary acknowledged in response to a query from the business daily Világgazdaság that the bank’s insufficient level of international reserves was among the factors that made Hungary’s €12.3 billion stand-by loan from the IMF necessary.


The MNB told Világgazdaság, with reference to the Guidotti rule stipulating that usable foreign-exchange reserves should exceed the scheduled repayment and interest obligation of foreign-currency debts for the following 12 months: “From the second half of 2007, short-term debt began to grow rapidly in the country, particularly the debt stock of banks, that is, the reserve requirement according to the Guidotti rule increased. Thus, while the central bank’s stock of foreign-currency reserves corresponds to the amount specified in numerous indicators, over the last few months it lagged significantly behind that stipulated in the Guidotti rule. It was for this reason, among others, that the IMF credit line was necessary.”

The International Monetary Fund (IMF) announced on November 7 that its executive board had formally approved a 17-month €12.3 billion stand-by loan for Hungary to reduce financial stress in the country. Hungary called down the first, €4.9 billion tranche of the IMF stand-by loan on November 11. The National Bank of Hungary reported on November 10 that preliminary figures show Hungary’s international reserves stood at €17.804 billion at the end of October, rising €395 million in a month after a €99 million increase in September.

The IMF stand-by loan, which is more than ten times Hungary’s quota, is part of a €20 billion financial support package for Hungary that includes €6.5 billion from the European Union and €1.0 billion from the World Bank. The MNB told Világgazdaság that the package has enabled the central bank to meet all foreign-currency reserve criteria, adding that amid the current global financial turbulence, the banks deems it important to have significantly higher reserves than required. (MTI-Eco)