Tenders, quick tenders
Actions to ease foreign currency liquidity tensions
Under the 16 October 2008 cooperation agreement between the Magyar Nemzeti Bank and the European Central Bank, from 16 October 2008 until withdrawal the MNB introduced a new standing overnight FX swap facility providing euro liquidity. Under the facility, counterparties are able to purchase euro against forint from the MNB at a pre-determined price, conducting FX swap transactions on business days.
From 9 March 2009 until withdrawal, the MNB announced new euro liquidity-providing three-month variable rate EUR/HUF FX swap tenders, which were discontinued from 11 November 2016. Since 2011 at the end of each year, the MNB has held variable rate one-week and two-week EUR/HUF FX swap tenders providing euro liquidity, in order to ease temporary liquidity tensions. In 2011–2012, the MNB conducted euro sale auctions related to early repayments, on the one hand, and the conversion of foreign currency loans in arrears by more than 90 days, on the other. The aim of the tenders was to defend the exchange rate of the forint and reduce credit institutions’ risks. Between 13 October 2014 and January 2015, the MNB conducted euro sale tenders and between 24 August 2015 and 21 September 2015 it held Swiss franc sale tenders related to the phasing out of consumer loans as well.
New instruments developed in connection with the Self-financing Programme
At its meeting on 23 April 2014, the Monetary Council of the MNB adopted a self-financing programme, aimed at increasing the role of domestic sources in financing government debt and reducing the country’s reliance on foreign financing, thereby enhancing financial stability. As part of this programme, the Bank’s instruments have been reformed several times. From 1 August 2014, the two-week MNB bill was transformed into a two-week time deposit. As of 16 June 2014, the MNB announced its interest swap instrument, on the one hand, and added a three-year collateralised forint loan facility and an asset swap facility to its potential central bank instruments, on the other. In view of the Monetary Council’s decision of 7 July 2015, the interest swap facility was announced for credit institutions with a 10-year maturity, in addition to the 3 and 5-year tenors. The last IRS tender took place on 7 July 2016. From 23 September 2015, the two-week deposit instrument was replaced by the three-month deposit as the key policy instrument. In order to support the liquidity management of the banking sector, the two-week deposit instrument remained temporarily available for credit institutions in the form of variable rate tenders with limited quantity until the end of April 2016. From the end of July 2016, the three-month deposit instrument is offered for credit institutions with monthly frequency, and, from the tender held on 26 October 2016, with a quantitative restriction in order to support credit institutions’ participation in the securities markets. In connection with the quantitative restriction on the deposit instrument, on 4 October 2016 the MNB introduced a fine-tuning deposit and a forint liquidity providing FX swap instrument with one-week, one-month and three-month maturities to facilitate banks’ adjustment, which were extended to six- and twelve-month maturities from 6 April 2017.
New instruments to be introduced under the Market-Based Lending Scheme (MLS)
Following the decision by the Magyar Nemzeti Bank’s Monetary Council on 3 November 2015, from January 2016 the Bank will launch its Market-Based Lending Scheme (MLS) in order to reduce credit risks and stimulate economic growth through lending to SMEs, thereby helping banks switch to market-based lending. As part of the programme, the MNB is introducing a lending interest rate swap facility conditional on lending activity (LIRS) and a preferential deposit facility. The LIRS, announced with a three-year maturity, is expected to encourage lending through managing the risks associated with SME loans and the partial assumption of such risks by the MNB. The preferential deposit facility is an instrument helping credit institutions manage their liquidity, which will contribute to an increase in counterparty banks’ lending activity.