MNB desterilization proceeds with no impact on interest rates and EURHUF, watch Polish elections on October 25 though

HUNGARY - In Brief 23 Oct 2015 by Istvan Racz
It has been roughly a month since the MNB's reform of monetary policy tools, and after the latest auctions on October 21, it is time to look at the results so far. Here is a list of what we have found: - The stock placed by banks in 3-month deposits, the new main sterilization instrument, has risen to HUF1610bn, whereas the stock placed in 2-week deposits, the old main instrument, fell to HUF1986bn, i.e. by a remarkable HUF2526bn. This means total monetary sterilization fell by no less than HUF916bn, i.e. by 20% within a month's time. - Unexpectedly, the foregoing adjustment took place to a great extent spontaneously, rather than being forced by the MNB's quantitative restrictions. The MNB is aiming to cut access to the 2-week deposit facility to HUF1000by year end, but in the event, adjustment is taking place markedly faster than that. On October 21, the MNB was prepared to take in HUF1205bn of 2-week money, yet total bids reached only HUF706bn. - As a result, the impact of the restriction on interest rates has been none so far. The average accepted rate at the 2-week auction rose to 1.32% on October 21 from 1.2% at the first post-reform auction on September 23. Please, note that the lowest accepted bid on September 23 was for an interest rate of 0.4% only, which rose to 1.25% on October 21. BUBOR rates have proven pretty much unchanged in the meantime, except for a bit of excess liquidity appearing in O/N money immediately after the latest auction. - So something has cleared the money market in the meantime. But we cannot find any of the desterilized amounts on the government debt market. Demand figures at auctions have not been up at all, and yields rose by 7-16 bps...

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