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Notices on the terms and conditions of the monetary policy interest rate swap facility and the mortgage bond purchase programme are now available

The experiences from the consultation with market participants have also been incorporated by the MNB into the programmes

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Budapest, 21 December 2017 – The Magyar Nemzeti Bank (MNB) has published the notices on the terms and conditions of the mortgage bond purchase programme and the monetary policy interest rate swap (MIRS) tenders on its website. The strategic parameters of the programmes were laid down by the Monetary Council of the MNB in November 2017, and the operational and technical conditions published now were developed by the central bank based on the experiences from the continuous consultation with market participants. The MNB launches its mortgage bond purchases on the secondary market in mid-January, and the first MIRS tender will also be held at that time. The MNB will take part at mortgage bond auctions that represent new issuance from mid-February, then, if necessary, it will purchase these securities at the secondary market as well. The combined upper limit of the purchases per issuer and series is 70 per cent of the total volume in circulation.

The Executive Board of the Magyar Nemzeti Bank has approved the notices on the terms and conditions of the mortgage bond purchase programme and the MIRS tenders. The notices have been published on the MNB’s website, and entered into force on 21 December 2017.

On 21 November 2017, the Monetary Council decided to introduce two unconventional instruments in January 2018 that are integral to the set of monetary policy instruments, namely the general, unconditional monetary policy interest rate swap facility and the targeted mortgage bond purchase programme. The purpose of the introduction of the instruments was to allow the loose monetary conditions to take hold on the longer section of the yield curve, and both programmes support the growth in the share of loans with long-term fixed interest rates. The strategic parameters of the programmes were stipulated by the Monetary Council, and the operational and technical details summarised in the currently published notices were developed by the MNB using the experiences from the continuous consultation with the market participants concerned.

Monetary policy interest rate swap facility

The amount allocated for the MIRS, introduced as a general monetary policy instrument, is HUF 300 billion for 2018 Q1, and the announced volume of the individual tenders will be decided by the MNB. Similar to the MNB’s earlier IRS programme, the instrument, with respect to which the relative position of the Hungarian and international yield curves will be a priority for the MNB, will be sold at tenders held every other Thursday. The instrument announced for 5- and 10-year maturities can be accessed by counterparty banks from mid-January 2018 at the variable-price MNB tenders, where the central bank will announce a minimum fixed interest rate. One strategic difference as compared to earlier central bank IRS programmes is that access to the MIRS is not subject to conditions, therefore the transactions with the MNB cannot be terminated before maturity.

The first MIRS tender will be held by the central bank on 18 January 2018.

Mortgage bond purchase programme

The Monetary Council expects that the mortgage bond purchase programme will trigger a rise in mortgage bond issues and a pick-up in market activity. Within the framework of the programme, the MNB purchases publicly issued, fixed-rate mortgage bonds from Hungarian issuers, denominated in forint, with an original maturity of at least 3 years and a current residual maturity of 1 year. In order to enhance transparency on the market, the MNB has declared that for new issues, the programme covers only the mortgage bonds in the case of which (1) the auction was held at the issuance platform of the Budapest Stock Exchange, (2) the issuer undertakes to initiate listing, and (3) continuous quoting on the stock exchange is ensured. It was also postulated that in the case of mortgage bonds, as a precondition for taking part in the programme, at least 90 per cent of the normal collateral should consist of mortgages provided to consumers (i.e. household mortgages).

The MNB makes purchases by conducting stock exchange and over-the-counter transactions on the secondary market, applying the principles of neutrality and equal treatment. With respect to the primary market, the MNB undertakes to make an offer amounting to 50 per cent of the auction volume for the issued papers if an issuer applies to the programme and meets the prescribed requirements, and if the internal auction limits of the MNB permit this. In the absence of a request from the issuers, the MNB reserves the right to make an auction offer anyway. The combined upper limit of potential purchases per issuer is 70 per cent of the total volume in circulation, and the MNB seeks not to exceed 70 per cent with its share in any given series either.

With respect to the secondary market, the MNB regularly publishes the amount of purchased mortgage bonds, and in the case of primary market purchases it discloses the purchased amount after the given auction. The purchases on the secondary market start in the second half of January 2018, while on the primary market the MNB will be available to issuers from 15 February. The MNB provides an opportunity for mortgage bond lending in order to support banks undertaking to quote new mortgage bonds; the relevant conditions will be set out until 28 February 2018.