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Free forint liquidity narrows slightly in June

Free forint liquidity of Hungary's banking sector fell slightly in June after increases in the preceding four months, the National Bank of Hungary (MNB) said in its monthly report based on preliminary figures on its statistical balance sheet on Tuesday. Domestic banks sold two-week MNB bonds to foreign investors while raising their stock of MNB swaps and one-day central bank deposits.

The repayment at the end of May by state-owned Hungarian Development Bank (MFB) to the central government of a €500m bridging loan granted in March raised average foreign assets as well as central government deposits in June. The MFB used the loan to pay back a €500 million bond due in March, and it repaid it after issuing an €500 million five-year bond in May. The central government granted MFB the bridging loan from the drawn but unused part of an IMF-lead credit.

The transfer of private pension fund assets of former members to the state also contributed to the rise in average central government deposits in June, although to a lesser extent than the MFB loan repayment, the report said. The assets, transferred by the middle of June, included about HUF 140 billion in cash, market regulator PSzÁF said at the time.

The repayment of a €1 billion foreign bond at the end of June only marginally affected the average stocks although it was a major factor behind the decline of end-of-month foreign assets and liabilities.

Average National Bank foreign assets rose HUF 234.3 billion in June to HUF 10,307 billion and average central bank deposits rose HUF 213 billion to HUF 1,960 billion, the MNB preliminary figures show. Excluding the two-week MNB bonds held by foreign investors, the MNB's average foreign liabilities rose only HUF 32 billion in June to HUF 896 billion.

End-of-month MNB figures show a HUF 183 billion decline in central government deposits, to HUF 1,822 billion at the end of June, including a HUF 166 billion decline in foreign exchange deposits, to HUF 1,297 billion.

The average stock of the MNB's foreign exchange swaps with banks rose now for the second month in a row, suggesting a shortage on the interbank market. The rise in the FX swap stock came after reductions in the previous months from an all-time high in January. The average swap stock rose HUF 51 billion in June to HUF 174 billion, although it was still down HUF 482 billion from the end of December.

Banks raised their average one-day deposits with the MNB by HUF 20 billion in June after a similar-size rise in May. The average stock of one-day deposits rose to HUF 222 billion.

Similar to May, the rise in one-day central bank deposits went parallel with a drop in the stock of two-week MNB bonds, the central bank's main liquidity management instrument, although one-day depos rose less than two-week bond stock fell as more money went into swaps than in May.

The average stock of the two-week MNB bonds fell HUF 57 billion to HUF 4,445 billion in June. Domestic entities sold HUF 99 billion of the bonds, little more than they bought in May, reducing their holding of the bonds to HUF 3,910 billion, and foreign investors bought HUF 31 billion of the MNB bonds after selling HUF 114 billion in May, raising their stock to HUF 545 billion.

The average balance on banks' current accounts fell HUF 4 billion to HUF 461 billion in June, exceeding the mandatory reserve requirements by HUF 5 billion, somewhat more than usual.

Average stock of cash in circulation rose HUF 34 billion from May to HUF 2,346 billion. The stock rose after drops between January and April.

One-day interbank rates stayed in the lower territory of the MNB's interest rate corridor throughout June.