Converting two-week ctrl bank bills into depo may not affect stock

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An eventual replacement of the two-week bills of the National Bank of Hungary (MNB) with two-week deposits may not affect the stock in the key sterilisation instrument, MNB executive director Márton Nagy told MTI on Friday. The bills are at present the MNB's key instrument to soak up excess forint liquidity. MNB governor György Matolcsy said in interview with MTI on Thursday that replacing the two-week bills with a two-week deposit facility would be a way to limit the access to domestic lenders. Any decision on the instrument should be made by the Monetary Council, Nagy said, adding that the council is expected to take a decision on the matter after through analysis. The MNB bills can be bought by domestic lenders, but they can trade them in the secondary market to both domestic and foreign actors. But access to the central bank's deposits is limited to domestic banks or branches of foreign banks which are direct members of the real-time settlement system Viber, have a securities account with the central depository and clearing house Keler and are obliged to hold mandatory reserves. There are three ways foreign investors could react to the eventual change, Nagy said. "Hot money shifts onto a longer term which is good", Nagy said if foreign investors reshuffle their forint portfolio into discount T-bills. They can also deposit the money freed from the two-week bills with a domestic bank, which in turn could eventually land with the central bank. The latter choice is less likely, in Nagy's view, as exposure to a Hungarian bank is more risky that that against the Hungarian central bank. Foreign investors currently hold little more than HUF 400 billion of two-week MNB bonds, which is less than 10% of the total stock.

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