The Magyar Nemzeti Bank announced the Funding for Growth Scheme on 4 April 2013. Pillar 3 of the Scheme was aimed at reducing the country’s external vulnerability. Following the Monetary Council’s decision, the MNB offered weekly FX swap tenders up to a total amount of EUR 2.5 billion. Counterparties entered into 12 swaps at the 53 tenders announced by the Bank between 3 June 2013 and 4 June 2014, for a total amount of EUR 1.53 billion (HUF 460 billion). The total amount of swaps outstanding was EUR 780 million (HUF 240 billion) at the beginning of June 2014. Credit institutions participating in the tenders reduced their short-term external liabilities by more than the total amount drawn on the swap line. This indicates that the Scheme has contributed to the reduction in Hungary’s external vulnerability, consistent with its objectives.

On 23 April 2014, the Monetary Council decided to reform the Bank’s instruments. The reform is expected to contribute significantly to increasing the role of domestic funding sources in financing the government debt and to reducing the country’s gross external debt and external financing requirement. In addition to reducing external vulnerability, these actions are expected to efficiently serve the second objective of Pillar 3 of the Funding for Growth Scheme, namely, the reduction in the outstanding amount of the MNB’s two-week instrument by increasing the share of forint financing. Therefore the Bank’s recently announced new instruments are expected to take over the role of FX swaps. According to the decision of the Monetary Council the floating-rate-payer forint interest rate swap (IRS) facility will be introduced from 16 June 2014, and the two-week MNB bill will be replaced by a two-week deposit facility from 1 August 2014. Furthermore, conditions are favourable in FX swap markets, spreads are historically low and around equilibrium levels. Consequently, maintaining the Bank’s FX swap facility under Pillar 3 is not justified.

Taking account of the changed circumstances, the Monetary Council decided to terminate the FW swap tender facility operated under Pillar 3 of the Funding for Growth Scheme from 1 July 2014, at its meeting of 10 June 2014.

Magyar Nemzeti Bank