The 1-week depo rate has moved further up today

HUNGARY - In Brief 09 Dec 2021 by Istvan Racz

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The MNB called its usual weekly 1-week deposit tender with a 3.3% interest rate, up by another 20 bps from last Thursday. The Bank collected HUF8194bn of HUF liquidity through this tender, which provided banks with unlimited access, as usual.In addition, today is the value date for the first reverse FX swap tender held by the MNB in Q4. The tender itself was held two days ago, and the Bank sold EUR1610m for HUF588bn (a starting exchange rate of EURHUF365.15). In the rest of this year, the Bank is preparing to hold three more reverse swap tenders and its first HUF-denominated discount bond auction, to provide banks with EUR liquidity, with a view to alleviating the usual end-quarter EUR shortage as foreign banks temporarily withdraw funds, and to soak up HUF liquidity. All of these actions will also support the forint. However, the impact will be temporary, as all reverse swap contracts and also the discount bond will expire/mature on January 6, 2022.Today's interest rate measure is another example of the MNB's step-by-step tightening approach. However, next Tuesday, the regular monthly rate-setting Monetary Council meeting is likely to lead to a much bigger step in the form of raising the base rate (currently at 2.1%). This could be potentially as high as the current difference between the 1-week deposit rate and the base rate, but that will not be necessarily the case. The base rate is currently largely dysfunctional, the effective sterilisation rate is the 1-week deposit rate.