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Banks' free liquidity continues to rise in June

Free forint liquidity of banks rose further in June, and a shift from overnight central bank deposits towards two-week MNB bonds also continued. The average stock of the central government’s deposits fell further last month, a report on the preliminary statistical balance of the National Bank of Hungary (MNB) shows.

The average stock of credit institutions' overnight deposits fell by HUF 85 billion from May to HUF 382 billion in June. The average stock of two-week zero-coupon MNB bonds held by banks rose by HUF 177 billion to reach a new record of HUF 2,647 billion last month. The pattern has been similar since April as market uncertainties somewhat eased after a deterioration in February-March.

Money held in the two central bank instruments has risen steeply since October to reach three times the levels before the crisis.

Among the instruments providing forint liquidity, the average stock of two-week covered central bank loans rose HUF 600 million to HUF 1 billion and the average stock of six-month covered loans dropped again, by HUF 40 billion from May to HUF 221 billion.

After a 65 billion rise in May, the average amount outstanding on FX swaps with the MNB, excluding O/N swaps, fell by HUF 6 billion to HUF 356 billion at the end of June. Banks swap forints into euros in two of the three facilities with the MNB, and swap euros to Swiss francs in the third facility.

The MNB has introduced various FX swap and covered loan facilities since last autumn to ease a liquidity squeeze stemming from the financial crisis.

Based on average figures, the stock of central government deposits with the MNB fell another HUF 281 billion in June after a HUF 417 billion fall in May, to average HUF 1,309 billion.

In an end-of-month comparison, the central government reduced its deposits held with the central bank by HUF 636 billion in June. Including a HUF 23 billion drop due to the stronger forint, the deposits dropped HUF 660 billion to stand at HUF 1,024 billion at the end of June. The bulk of the drop was in the central government's foreign currency deposits, the forint value of which fell HUF 536 billion to HUF 1,166 billion.

Most of the central government's foreign currency deposits are the disbursed but unused part of an international credit line granted to Hungary by the IMF, the EU and the World Bank in autumn. The government has been using the international credit line to finance the budget deficit and expiring debt, as well as grant loans to banks in order to facilitate domestic lending.

The average of the banking sector's current account balances fell HUF 14 billion to HUF 345 billion. After a moderate rise between January and May, liabilities under reserve obligation fell for the first time in June. Mandatory reserves dropped sharply in December 2008 when a cut in the mandatory reserve rate from 5% to 2% - another liquidity improving measure - took effect. The average stock exceeded the reserve requirement by a slight HUF 1.2 billion. The report noted that overnight interbank rates continued at close to the bottom of the interest rate corridor throughout June.

The average stock of currency in circulation fell HUF 24 billion in June after a HUF 58 billion drop in May, to HUF 2,269 billion. (MTI-ECONEWS)