Demand from the banking sector for the National Bank of Hungary's 3-month key policy instrument exceeded anything seen before at the Wednesday auction, as a result of the frequency of the offering reduced from once a week to once a month. What will be really interesting to see is what happens in October when deposits will no longer be accepted in unlimited quantities.
Commercial banks placed HUF 637.4 billion in 3-month central bank deposits on Wednesday, boosting the total amount of the key policy instrument to HUF 1,837.4 billion. Never has such a great increase taken place at any one auction, the reason or which is that as of the beginning of August, there is only one window of opportunity per month instead of the earlier weekly frequency. As a result of the change, the past few weeks saw almost HUF 430 billion of 3-month deposits maturing without an opportunity for renewal, in addition to another HUF 75.6 billion worth of maturities on the auction day today.
Today's auction has confirmed our suspicions that the sudden surge in negative-interest overnight deposits observed in recent weeks must have been due to commercial banks waiting in the wings to participate in the long-awaited chance to participate in the auction. The situation is likely to repeat itself at the end of September, as the aggregate volume of central bank bonds maturing by the next auction is HUF 207.9 billion, and the next chance to renew will be on 21st September. To make matters worse, the late September auction will be the last one offering an unlimited supply of 3-month deposits, a last chance banks are sure to jump on. Further, information on how fast and how much the NBH will limit the amount of the key policy instrument as of October will be made public only after the late September interest rate decision.
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