The Central Bank of Hungary decided to reform its monetary policy instruments by replacing its main two-week facility with a new three-month fixed interest rate deposit starting 23 September. The aim of the reform is to continue its self-financing programme by encouraging banks to purchase government securities. Government bonds are expected to be much more attractive than the three-month deposit, particularly since the three-month deposit will not be accepted by the Central Bank as a liquid instrument.
The two-week deposit will remain part of the central bank instruments, however the Central Bank will impose a quantity limit by using the auction method. As a result of the quantity restriction, holdings of the two-week deposits are expected to decrease gradually week by week to a HUF 1,000 billion level by the end of the year from the actual HUF 5,000-5,500 billion.
In order to further encourage demand for government securities the Central Bank is preparing a proposal to increase of the liquidity coverage ratio, in order to reach 100% in 2016, earlier than the international standard.
The Central Bank also decided to continue to announce interest rate swap tenders which help banks to manage their interest rate risks, thereby encouraging their demand for longer-term government securities.
Contact:
Gabriella Kopházi-Tóth
Senior Relationship Manager Global Securities Services Hungary
gabriella.toth@unicreditgroup.hu