The National Bank of Hungary (NBH) halted the monetary tightening through the reduction of the forint-liquidity swap portfolio, data from the NBH latest swap tender showed. The stock of the forint-liquidity swaps remained unchanged after the regular weekly tender after only two rounds of symbolic reduction. The NBH allocated HUF7.17bn of one-, three-, six- and twelve-month swaps on the tender, fully rolling over expiring HUF28.68bn of one-month swaps.
As we reported, the MPC voted to reduce excess liquidity by HUF100bn to HUF200-400bn for Q3 on its June rate-setting meeting — a similar decision as in March. The reduction in excess liquidity in Q2 was, however, achieved through a significant HUF264.2bn cut in the swap portfolio while the cumulative cut in Q3 has been just HUF21bn for now. We think the NBH liquidity management through the swap portfolio suggests that it has become more confident in the inflation outlook after the latest inflation data for June. Further reduction in the forint-liquidity swap stock still cannot be ruled out in case inflation developments start to deteriorate, in our view.
The stock of forint-liquidity swaps will amount to HUF1,704bn after the tender. It will consist of HUF51.5bn of one-month swaps, HUF158bn of three-month swaps, HUF486bn of six-month swaps and HUF1,008bn of twelve-month swaps.