MNB supports banks’ liquidity management and firms’ access to finance

The Magyar Nemzeti Bank is introducing a new longer-term instrument designed to help Hungarian banks to forecast for longer horizons by having access to euro liquidity with six-month maturity in an amount up to EUR 5 billion. By introducing the new facility, the Bank’s aim is to further reduce uncertainties arising from occasional scarce liquidity in the Hungarian money market and to alleviate recent strains in corporate lending. In addition, from 20 February 2009 the Bank will also accept as collateral bonds issued by Hungarian local authorities, in order to further increase forint liquidity.

In this difficult international financial environment, the availability for banks of foreign currency funding has recently become constrained. And a sudden decline in foreign currency lending could lead to a drastic fall in credit supply and, ultimately, to a sharp deterioration in Hungarian economic performance. In order to help economic agents to adjust, from 2 March 2009 the Magyar Nemzeti Bank will introduce six-month EUR/HUF swap tenders providing euro liquidity. Those domestic credit institutions will be allowed to participate in the weekly FX swap tenders who are willing to fulfil the criteria for participation specified by the Bank. One of the conditions is that participating commercial banks undertake to maintain their domestic corporate loans throughout 2009 at least at end-2008 levels.

Over recent months, the Magyar Nemzeti Bank has introduced a wide variety of instruments and has taken measures to enhance banks’ liquidity (overnight swap standing facility providing euro liquidity; euro and Swiss franc liquidity-providing swap tenders; auctions for the purchase of Hungarian government securities; tenders for two-week fixed rate and six-month variable rate collateralised loans; reduction in the reserve ratio; etc.) As the next stage in this series of actions, from 20 February 2009 the Bank will extend the range of eligible collateral in lending to banks to include euro or Swiss franc-denominated local authority bonds which meet the criteria specified by the Bank.

Detailed information on the related central bank facilities is available on the Bank’s website at: