June 19, 2019 / 1:40 PM / a month ago

UPDATE 1-Hungary central bank holds extraordinary FX swap tender to ease liquidity shortage

BUDAPEST, June 19 (Reuters) - The National Bank of Hungary (NBH) provided 463 million euros ($519 million) worth of forint liquidity to commercial banks via an extraordinary one-week foreign exchange swap tender on Wednesday to ease a temporary liquidity shortage, the NBH said.

Liquidity has dropped in the Hungarian banking system due to corporate value-added tax payments and a new retail government bond that was snapped up by households and largely financed via redemptions of government securities purchased earlier. The resulting liquidity shortage has pushed up interbank rates.

The FX swaps, which allow the central bank to manage forint liquidity in the banking system, have been an important policy tool for the bank, which has held onto its dovish stance.

“The one-week swap facility ensures that liquidity processes remain balanced until its maturity next Wednesday and it can also dampen an increase in short-term market rates,” the NBH said in a statement.

According to Reuters page the NBH offered 308 million euros worth of swaps at the tender, and received bids worth 1.337 billion euros from banks. The bank accepted bids worth 463 million euros.

The bank will hold its next rate-setting meeting on June 25, when it will also discuss its fresh inflation and economic forecasts and where some market players expect a small hike in the bank’s overnight deposit rate which stands at -0.05 percent. Others expect no change in interest rates.

The overnight interbank rate jumped to 0.66 percent on Wednesday according to Reuters page and other short-term rates also surged due to the temporary liquidity squeeze. The three-month Bubor fixing stood at 0.24 percent.

“Liquidity dropped at some of the banks,” a currency dealer said in Budapest.

The central bank said eight banks took part in the swap tender, which was justified by “temporary developments.”

It also said it was “ready to flexibly modify the stock of FX swaps in order to ensure that interest rate transmission facility develops in line with the Monetary Council’s decision.”

$1 = 0.8924 euros Reporting by Krisztina Than and Gergely Szakacs; Editing by Catherine Evans

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