Financial basis

Hungary’s central bank widens rate corridor to stem forint decline

BUDAPEST, March 8 (Reuters) – The National Bank of Hungary (NBH) raised the top of its interest rate corridor by 100 basis points on Tuesday to create room for further policy tightening amid massive sale caused by the war in neighboring Ukraine.

The bank raised its secured lending rate by 100 basis points to 6.4%, but left other interest rates unchanged. Deputy Governor Barbabas Virag will hold a press conference at 2:00 p.m. GMT.

The move, which some analysts had flagged after the BNH exhausted its room to maneuver with its biggest interest rate hike since late 2008 last week, initially boosted the forint . The unit had fallen to record lows near 400 to the euro on Monday.

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However, at 13:10 GMT the currency, which is still down 4.7% on the year, fell back to 388.25 per euro, lower than 387.1 just before the announcement, but 1.5 % stronger on the day.

Government debt agency AKK, which temporarily suspended mandatory market making for primary dealers amid Monday’s selloff, decided to go ahead with a bond tender scheduled for Thursday, but cut back drastically. amounts offered.

Last week, the BNH said it was ready to intervene “at any time” with all the tools at its disposal to ensure the stability of local financial markets, but the commitment did little to support the troubled forint.

Both the Polish and Czech central banks intervened in the market last week to support their falling currencies. The Hungarian central bank did not comment on the market interventions.

“(NBH) has relatively low foreign exchange reserves. Between NBP and CNB, the former has $161 billion while the latter has $175 billion,” Commerzbank economists said in a note.

“As a percentage of the economy, the NBP’s reserves represent around 27% (of GDP) while those of the CNB represent around 72% of GDP. This is why the CNB has been clear in announcing its interventions in the and establishing a credible promise in the forex market.”

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Reporting by Gergely Szakacs Editing by Bernadette Baum

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