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BUDAPEST, Feb 10 (Reuters) - The National Bank of Hungary’s stock of foreign currency swaps has fallen by 870 million euros after it rejected or accepted fewer bids at previous tenders to bring the amount of crowded out liquidity closer to its target range, it said on Monday.
The swap tenders, which allow the National Bank of Hungary to manage forint liquidity in the banking system, have been an important policy tool for the bank, which has held on to its dovish stance.
The bank again rejected all bids at Monday’s weekly euro/forint swap tender providing forint liquidity to commercial banks, curbing the stock of its swaps by 64 billion forints (189.6 million euros).
The central bank said even without any further reduction in its swap portfolio, market liquidity may shrink in the coming weeks, adding that local interbank rates and treasury bill yields have already risen as it started cutting back its swaps.
“This means that even if the current outstanding amount of FX swap of around HUF 2000 billion is maintained, this decline of liquidity can push up short-term yields further in the second half of Q1 2020,” it said in an emailed response to questions.
The forint fell to successive record lows in the first weeks of the year, setting a new all-time-low at 339.2 per euro on Friday, pressured in part by Hungary’s commitment to its loose monetary policy.
At 1456 GMT, it traded at 337.75 per euro, slightly stronger than last week’s close.
The central bank added that due to independent factors, such as government debt transactions, the stock of its overnight deposits would fall to around 300 billion forints in the second part of this quarter from over 1 trillion forints in January. (1 euro = 337.6206 forints) (Reporting by Gergely Szakacs and Anita Komuves; Editing by Toby Chopra)