MNB accepted a very large amount of 2-month deposits over BUBOR

HUNGARY - In Brief 05 Oct 2022 by Istvan Racz

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A 2-month deposit tender, the first of its kind, was held by the MNB today. The Bank accepted HUF2093bn of bids on this occasion, a very large amount compared to the roughly HUF10000bn of total banking sector liquidity. Some domestic sources regarded this amount as surprisingly big. But pricing is a good explanation this time as well: the weighted average spread over the 13% base rate was 1.14%. This means that the MNB actually has accepted a higher interest rate than today's fixing of 2-month BUBOR at 13.37%. This looks like a clear case of further monetary tightening. Given the current level of EURHUF, the forint definitely needed that support, as without a move like this, investors may have thought that the MNB gave up its informal exchange rate targeting policy when the end of its base rate increasing series was announced at its late-September Monetary Council meeting. The MNB has said that another longer-term deposit tender will be held next Wednesday. Tomorrow, it will also sell 1-week discount bonds in an amount of up to HUF1000bn, at a fix-price auction with a similar 14% annualised yield. As opposed to the 1-week deposit, discount bonds will be available for nonresident investors as well. These are good news for the forint, we think. A further positive factor is that Hungary has decided to support the EU's new anti-Russia sanctions (just as all the previous ones), on the mutually agreed condition that oil imports through pipelines will be exempt from the requirement to enforce a price cap and that the imports of goods and services required for the operation and construction of nuclear power plants will not be banned. A final decision on these sanctions will be...