Hungary central bank launches swap tenders for foreign currency liquidity

BUDAPEST: The National Bank of Hungary (NBH) said on Tuesday it had added swap tenders providing foreign currency liquidity to its monetary policy toolkit in order to reduce volatility in the domestic fx swap market.

The central bank said in a statement the new swaps will be used "in necessary cases" in addition to its regular swap tenders providing local forint liquidity which the bank has been using for a long time to manage interbank liquidity.

"By announcing a swap instrument providing foreign currency liquidity, the NBH will ensure that the volatility of domestic FX swap market yields at the end of the quarter is reduced significantly and that yields are in line with the level of short-term rates set by the Monetary Council," the bank said.

After two cuts in June and July, the bank last month left key interest rates unchanged and said it would increase its government bond purchases amid a worsening economic outlook caused by the coronavirus pandemic.

It has ruled out further cuts in the base rate, currently at 0.6%, saying it aimed to keep a safe distance from near-zero levels elsewhere in central Europe.

The NBH said on Tuesday it would later inform banks about the conditions of the new swap tenders, which will provide foreign currency liquidity with a maximum of two-week maturity.

The bank also modified its long-term collateralised lending facility, saying it will be kept for three and five-year maturities. Weekly tenders with maturities of up to one year will not be announced, it said.