The MNB is still in a tightening mode

HUNGARY - In Brief 05 Mar 2020 by Istvan Racz

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Just like a week earlier, the MNB left the outstanding stock of FX swaps unchanged at this Monday's tender, accepting exactly the same amount of bids as the weekly amount of maturing swaps. Yet the forint has strengthened to EURHUF 335-337 in recent days, following a few days spent around 340 in late February. The latter may have been due partly to the most recent coronavirus-related easing by the FED, and also a number of investors previously running short on the forint may have reached their targets already at 340. But importantly, the MNB kept the swap stock unchanged in the face of a decreasing stock of banking sector forint liquidity, a result of what the MNB usually refers to as 'autonomous processes', specifically mentioning current ÁKK activity as a leading factor.For a fact, by March 4, total HUF deposits (net of O/N credit) fell to an unusually low HUF 859bn (from HUF 1155bn at end-January), of which only HUF 118bn was unsterilised (HUF 483 bn in January), implying an unusually high 86% sterilisation ratio (58% at end-January). As a result, O/N BUBOR, so far left out of the rise of money market rates, jumped to 0.52% today, from only 0.09-0.1%, held for a long time up to February 27. Given that the MNB claimed repeatedly at recent times that this kind of spontaneous tightening of liquidity was going to happen, the fact that they did not compensate for the change should be regarded as a tightening step in itself.The question is what exactly the MNB is afraid of at a time when the global trend is becoming one of decelerating economies and loosening central banks, all because of coronavirus impacts? We think that first of all, the MNB may want to make sure that ...