Tenders, quick tenders
Central bank tenders and quick tenders are one of the allocation mechanisms for central bank instruments. The MNB can apply both deposit and loan tenders (including fixed rate, variable rate and free tenders) on the basis of the .
The MNB constantly monitors, assesses and, if necessary, introduces reforms to its monetary policy instruments. In October 2008 and April 2012, the Bank announced several instruments it had previously not used to support the Hungarian banking sector’s forint and foreign currency liquidity and strengthen banks’ lending capacity. In April 2014, the Bank reformed its instruments, closely related to its self-financing programme: in addition to the modification of the key policy instrument, an interest rate swap facility was introduced, and the set of potential monetary policy instruments was expanded. Within the framework of the self-financing programme, further changes to central bank instruments took place in 2015 and 2016. With the introduction of the Market-Based Lending Scheme (MLS), the MNB’s instruments have been supplemented with new elements.
The MNB phased out the 3-month deposit facility until the end of 2018. During summer and spring 2016 the MNB restricted in two phases (frequency and quantitative restriction) the banks’ access to the 3-month deposit facility. In the course of this the volume of outstanding deposits, which was as high as HUF 1,600 billion in autumn 2016, fell to HUF 75 billion by the end of 2017 and decreased to zero in December 2018. Since the reduction of the volume of the 3-month deposit to zero, the role of main policy instrument has been fulfilled by the minimum reserves.
In January 2018, the Magyar Nemzeti Bank introduced a floating rate-payer forint monetary policy interest rate swap facility without condition (MIRS) with terms of five and ten years for resident credit institutions in order that loose monetary policy conditions prevail on the long-term yield curve. In September 2018 the MNB announced the gradual phasing-out of the MIRS instrument until the end of 2018.
Instruments designed to support the banking sector’s forint liquidity
From 7 December 2016 due to the discontinuation of the 3-month collateralised loan tender only the one-week loan facility is available for credit institutions.
On 4 October 2016, the MNB announced a fine-tuning one-week deposit instrument and an FX swap instrument providing forint liquidity with one-week, one-month and three-month maturities related to the quantitative restriction on the three-month deposit instrument. From 6 April 2017 the MNB announced six-month and twelve-month FX swap transactions. The fine-tuning tenders may be held on an ad hoc basis, depending on liquidity developments. According to the Monetary Council’s decision in 18 September 2018 the MNB regards the foreign exchange swap instrument as a strategic element of unconventional monetary policy instruments affecting short-term yields and the Bank persistently maintains its presence in the foreign exchange swap market, which bears outstanding importance in terms of the monetary policy transmission. The MNB maintains its presence in the FX swap market on all presently existing maturities and maintains part of the foreign exchange swap portfolio persistently and on a stable basis. In order to ensure its primary goal, the achievement of inflation target in a sustainable manner, the MNB is prepared to the cautious and gradual normalisation of monetary policy. The normalisation process will begin with the modification of unconventional instruments. The unconventional instruments affecting short-term yields become simpler, and the Bank achieves its monetary policy objectives through two instruments, the forint liquidity providing swap instrument and the interest rate corridor, as well as through the optimal combination of these instruments.
Actions to ease foreign currency liquidity tensions
The MNB’s monetary policy instruments providing euro liquidity are the overnight, and the variable rate one-week, two-week, three-month EUR/HUF FX swaps. Currently the overnight and the variable rate three-month EUR/HUF FX swap instruments are in a discontinued status (the overnight became discontinued from July 2017, the three-month from 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. The euro sale tender is part of the set of MNB’s monetary policy instruments, which was conducted in 2011/12 related to early repayments and conversion of foreign currency loans in arrears by more than 90 days, between October 2014 and January 2015 related to conversion of foreign currency consumer loans. Between August and September 2015 the MNB held Swiss franc sale tenders too.
The self-financing concept developed by the MNB in 2014 contributed to reducing the country’s reliance on foreign financing and enhancing financial stability by increasing the role of domestic sources in financing government debt.
New instruments introduced under the Market-Based Lending Scheme (MLS)
From January 2016 the Bank launched 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 introduced a lending interest rate swap facility conditional on lending activity (LIRS) and a preferential deposit facility. The LIRS, announced with a three-year maturity, was 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 can contribute to an increase in counterparty banks’ lending activity. The Market-Based Lending Scheme (MLS) launched in 2016 terminated in December 2018 and the relating preferential deposit facility of counterparty banks made a lending commitment in the frame of the Market-Based Lending Shceme (MLS) will terminate in March 2019. Simultaneously the MNB will ensure a preferential deposit facility for counterparty banks participating in the Funding for Growth Scheme Fix (FGS fix) starting in January 2019 in order to provide the programme’s neutrality regarding liquidity by sterilising the excess liquidity on the central bank base rate.