May 10, 2020 / 6:42 AM / 18 days ago

UPDATE 1-Hungary central bank to use bond buy scheme only to extent necessary -Governor

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BUDAPEST, May 10 (Reuters) - A government bond purchase programme launched by the National Bank of Hungary (NBH) this week has curbed long-term yields successfully, Governor Gyorgy Matolcsy said on Sunday, adding that the central bank would only use this tool to the extent necessary.

The NBH bought 50 billion forints ($155.35 million) worth of government bonds at the inaugural tender on Tuesday, half the amount it had set as a maximum of weekly purchases.

Long-term yields have dropped since the bank announced its plans last week under a large-scale effort to shore up the economy hit by the coronavirus pandemic. Yields edged up on shorter-date bonds after the first auction.

Matolcsy told public radio in an interview that the scheme had achieved “within days” the effect that would have otherwise taken months under normal market circumstances.

“We will of course continue the programme, but this is a crisis-handling programme,” Matolcsy said. “This will last only as long as and done only to the extent necessary.”

Matolcsy reiterated that Hungary would recover quickly from the coronavirus pandemic, projecting 2-3% economic growth for 2020 despite the government and most institutions forecasting a sharp downturn.

Prime Minister Viktor Orban’s government expects the economy to shrink by 3% this year, while economists polled by Reuters project a 4% decline due to the restrictive measures and factory shutdowns triggered by the pandemic.

Matolcsy said despite some sectors, like tourism and restaurants, grinding to a halt, the “decisive majority” of the Hungarian economy had kept working even during the worst of a lockdown in April.

Hungary had already started a phased easing of the restrictive measures outside Budapest, where most cases of coronavirus have been registered so far.

“Based on the facts so far, we consider our optimism well-founded ... that the Hungarian economy will produce positive growth this year,” Matolcsy said, adding that the financial system was stable and resilient.

$1 = 321.85 forints Reporting by Gergely Szakacs; Editing by Susan Fenton

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