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Free forint liquidity rises in May

Free forint liquidity of Hungary's banking sector rose in the fourth month in a row in April after shrinking in the previous three months, the National Bank of Hungary (MNB) said in its monthly report based on preliminary figures on its statistical balance sheet on Tuesday.

The stock of the MNB's foreign exchange swaps to credit institutions rose after reductions for several months. Banks raised their one-day deposits with the MNB in May. The stock of two-week MNB bonds, the central bank's main liquidity management instrument, fell HUF 23 billion from a new peak reached in April. Domestic entities bought and foreign investors sold the MNB bonds, similar to April. A foreign bond issue raised both foreign assets and liabilities.

One-day interbank rates were in the lower territory of the MNB's interest rate corridor throughout May. On average, over-reserving was somewhat bigger than usual, similar to the previous few months.

The average stock of fx swaps rose HUF 11.5 billion in May after falling about HUF 110 billion in both March and April. The stock averaged HUF 122.5 billion, less than a fourth of its peak in December-January. The MNB introduced the forex swaps to ease a liquidity shortage late 2008 and early 2009. The stock fell to below HUF 100 billion in April-May 2010 before rising again.

The average stock of central government deposits rose HUF 181.7 billion in May to HUF 1,748 billion. The State of Hungary issued a €1 billion foreign bond in May. End-of-month figures show that central government's foreign currency deposits rose HUF 425.5 billion in March with all but HUF 5 billion of the rise in foreign currency deposits which rose to HUF 1,463 billion at the end of May. The foreign currency deposits include the drawn but unused part ─ about €2.5 billion in February ─ of the IMF-EU international loan package granted to Hungary during the 2008 autumn crisis. Central government forint deposits stood at HUF 542 billion at the end of May.

The average money on banks' one-day central bank deposits rose HUF 38.7 billion in May to HUF 202 billion after a drop in April. One-day deposits jumped to almost HUF 300 billion, their highest level since the autumn of 2009, in December 2010.

The average stock of two-week MNB bonds fell HUF 23 billion as the stock in foreign hands fell now for the second month in a row after increases in February and March. Foreign investors' average holdings of the bonds declined HUF 113.8 billion and domestic entities' holdings rose HUF 90.89 billion to HUF 3,997 billion. Domestic investors were buying the bonds from foreign ones now for the second month.

Excluding the two-week MNB bonds held by foreign investors, the average stock of the MNB's foreign liabilities rose HUF 44.7 billion last month to HUF 864 billion after decreases in the previous four months. Average foreign assets of the central bank were helped even more by the foreign bond's proceeds, and they rose HUF 303.4 billion in May to HUF 10,072 billion. Net foreign assets of the bank averaged HUF 9,209 billion in May, rising each month since December after dropping in the second half of last year from a previous peak of HUF 8,917 billion in June 2010.

The average balance on banks' current accounts with the MNB exceeded the mandatory reserve requirements by HUF 8 billion, somewhat more than usual in May. Banks held on average HUF 465 billion on their current account in May, HUF 22.6 billion more than in April. The increase reflected the higher system-level reserve requirement as the share of banks opting to use a higher mandatory reserve rate than the 2% minimum rose to a third of the total from May 1.

Average stock of cash in circulation was practically unchanged from April at HUF 2,312 billion. The stock dropped in the previous four months. The average cash in circulation declined twice, in March and in October, last year.