Free liquidity in Hungary’s banking sector as well as average central bank external assets rose in February on a USD 2bn bond issue by the State of Hungary late January, the average-stock National Bank of Hungary (NBH) preliminary statistical balance sheet published on Friday showed. The two-week NBH bond stock reached an all-time high as a result.
Average liquidity in the banking system rose significantly in February after practically no change between October and January, boosted by Hungary’s USD 2bn bond issue the proceeds of which arrived just at the very end of January.
The NBH’s average stock of external assets, at HUF 9,075.6bn in February, were up HUF 494.5bn in a month, mainly reflecting the sovereign issue, and, to a limited extent, the weakening of the forint. Central bank external liabilities were practically unchanged, averaging HUF 1,181.2bn in February.
Part of the revenue from the foreign bond, having been spent by the government, landed with banks, and the average stock of the NBH’s two-week zero-coupon bonds – the central bank’s main liquidity management instrument – rose HUF 201.6bn to HUF 3,645bn, an all-time high.
The increase of the NBH bond stock far exceeded the combined average withdrawals of banks’ average overnight deposits and swaps with the NBH.
Banks continued to reduce their overnight deposits with the NBH. Average ON deposits dropped by HUF 27.1bn from January to HUF 76.5bn in February. The average stock of FX swaps outstanding fell by HUF 27.7bn to HUF 335.2bn.
Central government deposits with the NBH also rose on average, by HUF 262.2bn from January to HUF 1,389.4bn as the government deposited the proceeds of the USD bond on its accounts with the NBH. End-of-month figures show that the government spent or converted into forints the bulk of the bond proceeds by the end of February.
Banks held on average HUF 344.9bn on their NBH accounts, HUF 9.1bn more than in January, and, as usual, the average only slightly differed from their reserve requirements, exceeding the latter by HUF 1.7bn.
Banks had no obligations to the central bank on either two-week or on six-month loans, operated by the NBH since October 2008.
The NBH’s average total assets rose a sharp HUF 480bn on the effect of the bond issue, to HUF 9,892.5bn.
Despite the excess liquidity, the overnight interbank lending rate fluctuated around the central bank base rate – its pre-crisis equilibrium level – for most of February and neared the bottom of the interest rate corridor only by the end of the month. This, together with the rise in the balance of banks’ NBH account suggest some pickup in banks’ activity.
The average stock of currency in circulation rose only by a marginal HUF 6.2bn to HUF 2,177.3bn in February.