The MNB offers collateralised loans to provide banks with liquidity

HUNGARY - In Brief 24 Mar 2020 by Istvan Racz
Following today's Monetary Council meeting, the MNB announced a new facility to offer banks collateralised loans for 3, 6 and 12-month and 3 and 5-year maturities, with fixed interest rates. The loans will be distributed through tenders, the first of which will be held tomorrow. The Bank will set the offered amounts and the interest rates individually for each tender, depending on the level of banking sector liquidity and market conditions. The Monetary Council has authorised the Bank to provide a potentially unlimited amount of liquidity through the new facility, to protect the economy amidst the current and prospective difficult conditions.The banking sector currently has a total of HUF 9600bn of eligible collateral, of which HUF 7000bn represents various securities and a further HUF 2600bn represents loans to big companies (taking into account a 30% haircut for this latter item), which have been classified as eligible collateral for transactions with the MNB since yesterday. In addition, the Bank will maintain its FX swap facility, including the one-week swaps which were introduced only a week ago. Finally, banks will be now relieved from the requirement to place with the MNB a 1% mandatory reserve after deposits and certain other liabilities, which will free up for them some HUF 250bn of extra liquidity. The primary objective behind the new measures is to protect potential GDP, with a view to keep inflation targeting the Bank's top priority. In a later phase, the Bank will shift its focus on supporting GDP growth, once again without endangering its top priority to meet its inflation target. Another objective will be to efficiently control and influence the HUF yiel...

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