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MNB stops two-way O/N FX swaps

  The National Bank of Hungary (MNB) on Wednesday said it will stop its two-way overnight FX swap tenders from May as improving liquidity reduced demand for the instrument.

The bank will, however, continue to operate its one-way O/N FX swap facility with unchanged terms. It will also maintain its six-month, variable-rate secured loan tenders, with slightly changing terms, at least until the end of June 2010.

The MNB introduced all three instruments in the autumn of 2008 to ease narrowing liquidity.

The MNB said it will cease to operate its daily O/N two-way EUR/HUF FX swaps from May 19. The facility has been very little used in recent months as liquidity has improved markedly on the domestic FX swap market, with banks easing their limits on dealing with each other, the bank said. The last allocation in the facility happened at the beginning of January, MNB figures show.

The MNB will, however, maintain the availability of its standing one-way O/N EUR/HUF FX swap facility, with the same terms as before, in order to reduce excessive volatility of market yields.

The MNB has been offering fixed-rate overnight euro liquidity to resident banks daily in the instrument, backed by a repo facility of up to €5 billion the European Central Bank (ECB) opened to the MNB last October. The MNB publishes no information on the use of this facility.

The MNB also said it commits itself to maintain its six-month, variable-rate collateralized loan tender facility at least until June 30, 2010, noting that it may extend its availability if liquidity strains remain on the interbank market.

In a change of the terms of the six-month secured loan facility, the number of bids to be submitted by any one partner will increase from one to three from May 5.

In accordance with existing practice, the MNB will take into account prevailing interbank market rates and government securities yields of comparable maturities when deciding whether to accept bids.

Demand varied between HUF 10 billion and HUF 30 billion in April for the HUF 30 billion six-month secured loans the MNB has been offering at the weekly tenders introduced last October. (MTI-Econews)