Hungary central bank says may need to raise FX swap stock in H2

Madiha Shakeel July 25, 2019

BUDAPEST: Hungary’s central bank may need to increase the stock of its outstanding swaps providing forint liquidity in the second half of 2019 to achieve its policy targets if liquidity tightens in the banking sector, the bank said on Thursday.

In a study, the bank’s experts said liquidity in the banking sector may tighten in the second half due to several factors, which could “require the increasing of the central bank swap stock in order to achieve the targeted crowding-out effect.”

FX swaps are a key policy tool for the National Bank of Hungary (NBH) which kept its rates on hold on Tuesday.

“Liquidity developments continue to be surrounded by uncertainty,” the bank’s experts said.

The Monetary Council has set the amount of liquidity to be crowded out in the third quarter as at least 200-400 billion forints, 100 billion forints below the second-quarter target.

“The NBH continuously monitors developments in liquidity looking ahead, and if warranted by the achievement of the crowding-out objective … it remains ready to change the swap stock in both directions,” the bank said.

The bank held an extraordinary one-week foreign exchange swap tender in June to ease a temporary liquidity shortage.

Copyright Reuters, 2019

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