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Free forint liquidity rises again as fx swap stock drops further

The free forint liquidity of Hungary's banking sector rose in the second month in a row in March after shrinking in the previous three months as the drop of the foreign exchange swap stock of credit institutions continued, the National Bank of Hungary (MNB) said in its monthly report based on its statistical balance sheet on Tuesday.

Banks significantly raised their one-day deposits with the MNB and the rise was only limitedly offset by a reduction of the total stock of two-week MNB bonds, the central bank's main liquidity management instrument. This was just the opposite of the developments in February.

One-day interbank rates were near the bottom of the MNB's interest rate corridor in March. Over-reserving was somewhat bigger than usual, similar to the previous few months.

The average stock of fx swaps fell HUF 117 billion in March, about half of the drop in February. The stock more than doubled between October and January when it peaked at HUF 584 billion. The stock fell to below HUF 100 billion in April-May last year, before rising again. The MNB introduced the fx swaps to ease a liquidity shortage late 2008 and early 2009.

The average stock of central government deposits rose HUF 147 billion in March after a HUF 66 billion drop, and reached HUF 1,232 billion at the end of March. The rise came as the proceeds of a $3.75 billion foreig bond issue by Hungary arrived late March. End-of-month figure show that the foreign currency deposits of the central government rose by HUF 519 billion in March to HUF 1,280 billion at the end of last month and forint deposits fell HUF 152 billion to HUF 384 billion. The average foreign currency deposits include the drawn but unused part – about €3 billion – of the IMF-EU international loan package granted to Hungary during the 2008 autumn crisis.

The average stock of two-week MNB bonds fell HUF 13 billion in March to HUF 4,088 billion in the first drop of the stock since last November. The average stock of bonds in foreign hands rose by a further HUF 19 billion to HUF 640 billion; the increase was HUF 160 billion in February. The two-week bond holdings of domestic investors fell by HUF 32 billion after a steep HUF 281 billion rise in February, and averaged HUF 3,448 billion.

After two months of decline, the stock of banks' one-day deposits with the central bank rose HUF 136 billion to average HUF 276 billion in March. One-day deposits jumped to almost HUF 300 billion, their highest level since the autumn of 2009, in December.

Including the average foreign holding of the two-week bonds, the average stock of the MNB's foreign liabilities fell further, by HUF 161 billion, in March, while foreign assets rose HUF 69 billion. Average foreign liabilities, excluding the two-week forint bonds, fell HUF 116 billion to HUF 953 billion and average foreign assets rose to HUF 9,418 billion.

The average balance on banks' current accounts with the MNB exceeded the mandatory reserve requirements by HUF 4.8 billion, somewhat more than usual. Banks held on average HUF 442 billion on their current account in March, HUF 3.8 billion more than in February.

Average stock of cash in circulation fell by HUF 13 billion last month to HUF 2,322 billion, the bank said. The drop was the third one in a row. The average cash in circulation declined twice, in March and in October, last year.