January 30, 2020 / 9:48 AM / 21 days ago

Hungary's central bank warns market liquidity could drop in short term

BUDAPEST, Jan 30 (Reuters) - Liquidity in Hungary’s interbank market may fall markedly in the short term due to various factors, even if the central bank does not reduce the stock of its swaps that manage liquidity, the National Bank of Hungary said in a study on Thursday.

Central bank directors Barnabas Virag and Pal Kolozsi said in a study on the NBH’s website that the current abundance of liquidity was misleading, and “might melt away rapidly.”

“All this means that the banking sector’s current abundant liquidity might decline substantially even if the NBH’s swap stock does not decrease. That should be taken into account in forecasting expected liquidity conditions,” they said.

The weekly fx swap tenders, which allow the central bank to manage forint liquidity in the banking system, have been an important policy tool for the bank, which has held on to its dovish stance. The forint fell to a record low versus the euro after the last swap tender on Monday. (Reporting by Krisztina Than and Gergely Szakacs)

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