Hungary’s central bank – no need to issue forex bonds this year

There is no need for Hungary to issue forex bonds this year with the exception of a small amount of CNY-denominated Panda bonds, National Bank of Hungary (NBH) managing director Daniel Palotai said in an interview for the business daily Vilaggazdasag. The NBH does not play a role in the debt management but it works to reduce the country’s vulnerability, Palotai explained. He reiterated the arguments of an earlier article by NBH experts that forint financing was currently cheaper than forex borrowing after pricing the exchange rate risk. Moreover, the budget can be easily financed out of domestic sources, Palotai stressed, pointing out to the large net retail security sales in January.

Palotai’s arguments came after being invited to comment on economy minister Mihaly Varga’s statement, who stressed that forex bond issuance should not be ruled out. The divergence of opinions between Varga and the central bank has become quite public recently. There have been media reports for conflicts between Varga and NBH governor Gyorgy Matolcsy in the past as well due to Matolcsy’s continued influence over the government’s economic policy. We believe that this conflict will remain low-profile and we rather expect the central bank side to win the debate, given its seeming success in pushing through its ideas in the past.

Palotai spoke in favor of issuing small amount of Panda bonds for the sake of geographical diversification of the funding as well as towards moving towards increased financing through longer-term forint bonds. He said that the potential increased forint issuance will not burden the domestic market, taking into account the experience from the previous years as well as the decline in the borrowing requirement this year.

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