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MNB allocates maximum €400 million of three-month FX swaps as demand soars at tender

The National Bank of Hungary (MNB) allocated the maximum € 400 million of three-month floating rate €/HUF swaps as demand jumped to € 624m at its weekly tender on Monday.

Demand was the highest since the facility was introduced in March 2009, and it surpassed the available maximum for the first time since December 27, 2010, when bids totaled € 410 million.

After relatively low or no demand at the tenders between the middle of April and late May, the previous two tenders attracted bids of € 100 million and € 105 million.

The MNB offered the usual maximum of €400 million three-month swaps at a maximum 241.74 swap points on Monday. The average accepted price moved between 236.00 and 239.80 and averaged 239.47 swap points. With €70 million in expiries, the outstanding volume will rise by €330 million to € 862 million, its highest level since late March, on the June 1 settlement day, Econews calculated.

The stock reached an all-time high, of €1.922 billion, at the end of 2010 as liquidity on the interbank swap market narrowed due to rising swap market spreads and seasonal factors. After no bids between February 14 and February 28, interest for the central bank three-month EURO/HUF swaps revived in March, varied in April and May before picking up again in June.

The MNB started to offer three-month floating-price EURO/HUF swaps and six-month fixed-price EURO/HUF swaps to banks weekly in March 2009. The fixed-price six-month EURO/HUF swap facility ran out as planned by the end of 2010. The bank also offered one-week CHF/EURO swaps weekly between February 2009 and January 2010.

The bank has been operating one-day FX swaps daily since October 2008. The swap facilities were launched to ease Hungarian banks' access to FX financing.

MNB governor Andras Simor said at a press conference after a rate-setting meeting of the central bank's Monetary Council on Monday that demand for the facility was probably high because of turbulence in the eurozone. The purpose of the facility is to provide a buffer for short-term market disturbances, he added.