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National Bank of Hungary holds first euro tender for early FX repayment scheme

The National Bank of Hungary (MNB) on Monday held the first of a series of regular euro-for-forint tenders designed to give banks sufficient liquidity to handle early repayment of foreign currency-denominated mortgages by retail borrowers under a recently launched government scheme, the central bank said.

The MNB said the strongest forint rate at which euros were purchased in the tender was 294.45, slightly under the 294.82 central bank fixing, but nearly level with the market rate between 11:15 and 11:30 in the morning, when bids were accepted.

When the MNB announced the launch of the tenders, it said only the strongest forint rate accepted at the tenders would be announced immediately following, while purchase volume would first be revealed when the central bank publishes its monthly statistical balance sheet.

The balance sheet for October will be published on November 14.

Under the government scheme, launched at the end of September, borrowers may repay, in full, foreign currency-denominated mortgages at a discounted exchange rate. Banks must shoulder the difference between the discounted rate and the market rate under the scheme which runs until the end of the year.

The MNB will hold the euro tenders every week, or more frequently if necessary, until the end of February 2012.

Settlement of the euro purchases will not take place until early repayment of the loans take place, until which time the MNB will roll over the euros in spot/next EUR/HUF FX swaps.

The MNB earlier estimated that HUF 1,000-1,100bn of retail forex lending stock -- 20% of the total -- would be repaid under the early repayment scheme.

MTI calculated that demand for foreign exchange created by the early repayment scheme could reach €3.7bn or some 10% of the MNB's €37.6bn of foreign exchange reserves.