On 2 June 2015, the Monetary Council made a decision on the continuation of the self-financing programme and the related changes to the MNB’s sterilisation instruments beginning from September. The changes to the instruments and a planned tightening of liquidity regulations already announced are expected to boost banks’ demand for government securities, which the MNB will support by conducting interest rate swaps, consistent with the practice followed since June 2014 and in accordance with the Monetary Council’s decision.
In June 2015, the MNB undertook consultations with banks, during which potential changes to the parameters of the IRS were a key issue. Banks potentially using the IRS facility proposed to introduce a ten-year IRS, in addition to the three and five-year IRSs, which the MNB and the Monetary Council accepted. By introducing the ten-year maturity IRS, the MNB will be able to provide support to banks in increasing and stabilising their holdings of long-term government securities, thereby reducing the costs of government debt financing.
The current outstanding amount of interest rate swaps introduced last year is nearly HUF 550 billion. By using the facility, the seven banks having recourse to IRSs have not only increased their holdings of government securities, but have also undertaken to maintain their existing government securities holdings, accounting for a significant portion of the banking sector’s total government securities holdings, for a sustained period. Uses of IRSs so far have been concentrated in the summer of 2014. This is explained by the fact that the two-week MNB bill was converted into a deposit facility at that time, which was a key measure of the first period of the self-financing programme, and directed banks towards government securities. Banks’ demand for IRSs fell by the beginning of this year, but increased again after changes to the MNB’s policy instruments were announced on 2 June 2015: in the IRS tenders held during the period since the announcement more than a month ago, banks conducted IRSs with the MNB amounting to more than HUF 90 billion. This is an indication that banks have begun to adjust to the change to the MNB’s policy instruments taking place in September 2015.
The MNB will inform banks about the operational details of the ten-year IRS facility.