ANALYST VIEW - Hungary cenbank increases HUF liquidity injections further

Portfolio
Hungary’s central bank (NBH) has allotted 200 billion forints worth of 1-month FX swaps providing HUF on its tender on Monday, replacing HUF 150 bn maturing in the same tenor. Citigroup analyst Eszter Gárgyán said the bank is unlikely to be under pressure to tighten liquidity conditions, and likely to aim to keep rates via liquidity management until at least late 2018.
Liquidity injections have increased by HUF 50 bn as a result of Monday’s swap tender, reaching altogether HUF 650 bn in 1M, 3M and 6M FX swaps.

Click to enlarge
The NBH has communicated that it will continue to rely on FX swaps to anchor the front end of the yield curve, which provides a flexible tool to manage liquidity conditions. The MPC already decided in March about the extension of FX swap tenors to 12 months, Gárgyán said in a research note on Tuesday.

She noted that this tenor has not been auctioned yet but “is an indication of the NBH’s effort to anchor forward BUBOR expectations and we believe there may be even longer tenors added, if needed."

Click to enlarge

The recent drop in oil prices, soft CPI surprises and potential regulative price cuts (VAT and/or utility prices) may create room for the NBH to maintain its current dovish stance in the next 6-8 quarters.

Recently, monetary policy communication has increasingly put emphasis on not just keeping the policy rate unchanged (at 0.90%) but also maintaining the current loose stance of monetary conditions, Gárgyán added.

“Given the low FX pass through to CPI, the NBH’s tolerance towards weaker FX and Hungary’s large structural trade surplus, the NBH is unlikely to be under pressure to tighten liquidity conditions and will likely target to keep interbank rates at current compressed levels via liquidity management until at least late 2018."

More in Economy

forint
December 11, 2019 11:32

Futile efforts - Hungarians continue to wallow in a giant pool of cash

Horrific figures revealed

szijjartopeter
December 11, 2019 08:10

One of the world's leading water companies to invest in Hungary again

The French multinational is to start nearly HUF 10 billion expansion project

GettyImages-1139642499factoryworkermunkás
December 10, 2019 15:17

2020 minimum wage on the table again in Hungary on Wednesday

Deal is most unlikely, though

Rontott a magyar bankszektor megítélésén a Moody's
December 10, 2019 12:05

Labour shortages pose a growing risk to CEE's long-term economic prospects - Moody's

Hungary in the most difficult position

shopping01
December 10, 2019 10:21

Hungary cenbank publishes own inflation data

Steady price pressure

shop retail sales lidl
December 10, 2019 09:00

Hungary's inflation accelerates in November

No surprise there