Extra foreign exchange demand by retail banks stemming from the government’s early mortgage debt clearance scheme would be manageable up to €4-5bn, London-based emerging markets analysts said on Monday.
Economists at BNP Paribas said in a report released to investors in London that fresh demand for hard currency in the order of €4-5bn "can be easily absorbed by the MNB", using its reserves.
Assuming that the MNB would not wish to reduce the ratio of international reserves versus short-term external debt below 1, the central bank could even use up to €10bn from its reserves to meet the hard currency demand and still keep the exchange rate relatively stable.
However, anything more than that, or any further rise in risk premium will create a risk of significant forint depreciation. And this would be "extremely bad news" for those borrowers who will not be able to repay their foreign currency-denominated mortgage under the government's plan, BNP Paribas said.
In a separate report on the FX mortgage scheme, Morgan Stanley's London-based emerging markets economists said that according to their discussions with banks, they think 10-30% of borrowers could join the scheme, which represents some €2-6bn. €4bn "looks manageable, but larger amounts – especially in the current environment – could be more problematic", the report says.
The central bank's reserve position is "certainly the strongest it has ever been", double the level in late 2008, pre-IMF package. It is also true, however, that Hungary's reserves "do not look that ample once we take into account the large short-term external debt stock".
There are around €3.5bn of IMF loans coming due next year as well as €1.5bn worth of international bonds. "In short, the reserve position looks comfortable but the authorities do not have infinite ammunition", Morgan Stanley said.