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MNB to buy gov't securities from primary dealers

Hungary’s Central Bank (MNB) will hold auctions to buy government securities from primary dealers under an agreement between the Bank and primary dealers of government securities, the MNB announced.

The first such auction will take place this week.

The MNB will operate new facilities to provide liquidity in the form of secured loans to banks and primary dealers while primary dealers undertake to increase their government paper holding and offer continuous bid/ask quotations on the stock exchange under the agreement.

Primary dealers undertake to provide continuously quote bid and offer prices at the Budapest Stock Exchange for all publicly issued forint-denominated government securities with more than 90 days to maturity, for a face value of at least Ft 100 million from October 17, Friday.

The maximum quotation margin for papers with up-to-one year to maturity will be a 50 basis points (bps), and the margin for securities maturing in more than one year will be 30bps.

Primary dealers also undertook to increase their Hungarian government securities holding.

In addition to auction purchases from primary dealers, the MNB will introduce two new lending facilities: a weekly tender for two-week, fixed-rate secured loans, without a limit on the amount; and a regular tender for six-month, variable-rate secured loans, for a pre-specified amount.

Primary dealers, who undertake and meet the terms of the agreement, will be allowed to participate (sell) in the government securities auctions and submit bids to the variable-rate tenders.

The participants of the fixed-rate tender facility will be those - resident banks - who have access to the central bank's existing overnight secured loan facility.

The agreement will be in force until 31 December 2008, when it will be reviewed in light of current market conditions. (MTI – Econews)