Following the Monetary Council’s decision of 6 September 2010, on 14 September 2010 the MNB has started to publish its forecasts of the liquidity factors affecting the entire banking sector to support credit institutions liquidity management, initially for a trial period. Based on the responses from market participants, most credit institutions have monitored regularly the MNB’s liquidity forecasts, which have proved useful particularly in forecasting large liquidity shocks. Despite the fact that recourse by the banking sector to the Bank’s overnight standing deposit facility continues to be large, turnover in the overnight interbank market has picked up significantly in recent months.

In the Bank’s judgement, since their inception the liquidity forecasts have become an effective tool to support the liquidity management of banking sector participants. The Bank has therefore decided to continue publishing forecasts of liquidity factors potentially affecting the banking sector as a whole from June 2011. By publishing the forecasts, the Bank’s aim continues to be to contribute to optimal recourse to the main policy instrument through supporting the liquidity management of credit institutions and to ensure that credit institutions have less recourse to the Bank’s overnight standing lending and deposit facilities. This in turn would help to ensure that movements in overnight interbank interest rates become more closely aligned with changes in the central bank base rate.

The Bank will continue to publish its liquidity forecasts on its website under ‘Monetary Policy Instruments’ and on the Reuters NBHL and Bloomberg NBH4 screen pages every week, before the auctions of two-week MNB bills, the Bank’s key policy instrument.

Counterparties are advised that, due predominantly to the difficulty of forecasting the balance on the Treasury account, the Bank is only able to estimate the expected size of the banking sector’s liquidity with considerable uncertainty. The Bank therefore does not assume any responsibility for the accuracy of forecasts, and it will neither publish nor comment on any deviation of the forecasts from actual liquidity subsequently.

MAGYAR NEMZETI BANK