No new FX swaps sold at today's tender, once again

HUNGARY - In Brief 10 Feb 2020 by Istvan Racz

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The stock of the MNB's FX swaps sold to domestic banks is set to fall by HUF 64bn to HUF 1991bn on Wednesday, as the Bank decided to reject all bids at today's tender, the same way as it did a week earlier. At the latest date for which data is available, i.e. on February 9, total HUF liquidity was HUF 1358bn, of which HUF 749bn was sterilised, and so the sterilisation ratio was 55.2%. This reflects somewhat more unsterilised excess liquidity and a lower sterilisation ratio than a week ago, but still relatively tight conditions compared to the past few months, e.g. a ratio of 31.9% and unsterilised liquidity of HUF 1137bn at end-December. Importantly, BUBOR rates rose further over the past week, by 1 bp to 0.1% only for O/N but much more considerably, by 8 bps to 0.32% for 3 months. The reason for this rise may be structural, i.e. potentially due to the existence bigger excesses of liquidity at some banks against bigger shortages at others, although we have no factual information on that aspect.Anyway, we take today's MNB decision as just another sign that the MNB wants to stop the forint's weakening in EURHUF terms, after the latter hit 309.23, a new historical low for the forint, on February 7. The reader is kindly reminded of the upcoming release of the January CPI-inflation data on Thursday, February 13, at which point we expect the headline rate at 4.2% yoy, up from 4% yoy in December but prospectively turning back down again in subsequent months. The MNB's own forecast for January is 4.3% yoy, which we understand to be on the safe side. But most importantly, the headline rate is most likely to exceed the MNB's 4% tolerance ceiling, even if temporarily. The forint ...