Hungarian central bank signs 4 billion-euro repo deal with ECB

BUDAPEST: The National Bank of Hungary has agreed with the European Central Bank to provide euro liquidity to Hungarian banks to address possible euro liquidity needs amid the COVID-19 pandemic, the NBH said on Thursday.

Romania and Serbia are also among a number of Eastern European countries that secured access to euro liquidity via similar repo or swap lines with the ECB in the wake of the coronavirus pandemic.

Under the deal, the ECB provides euro liquidity in exchange for adequate euro-denominated collateral.

The NBH will be able to borrow up to 4 billion euros from the ECB until the end of June 2021, unless an extension is decided.

The ECB repo line comes on top of agreements with the Bank for International Settlements for 2 billion euros, a repo facility by the Federal Reserve, and an FX swap deal with the Bank of China.

Taken together, they enable the NBH to increase foreign-currency liquidity by up to 10 billion euros within a short time, the Hungarian central bank said.

"The safety net created by the above agreements ensures additional foreign-currency liquidity over central bank reserves," the NBH said in a statement.

"By building the safety net, the Bank has significantly increased its room for manoeuvre, thereby it is able to give a quick and firm response to potential tension emerging in any sub-market while maintaining safe levels of international reserves."

Hungary's international reserves stood at 30.2 billion euros at the end of June, up from 24.9 billion euros at the end of February, just before the coronavirus pandemic reached Hungary.

Hungary, which had previously preferred forint-denominated debt financing, issued a total of 3.5 billion euros worth of eurobonds amid the pandemic to help finance its increased budget deficit.