Hungarian Central bank to review its IRS programme, may wind down current QE

In a surprising development, MNB deputy governor Marton Nagy has announced that the CB will review its 3-, 5- and 10-year interest rate swap tenders in coming months. The overhaul of the Hungarian central bank's monetary policy toolkit will be largely completed this month, when its two-week deposit is phased out, the bank's deputy governor Marton Nagy said on Friday.

The interest rate swaps are operations which the central bank has been conducting as part of its QE programme to bring down bond yields. "As a result of the shift towards forint-denominated debt financing, Hungary's external debt had dropped", Nagy said in a study published on website Portfolio.

"All this justifies a strategic review of the programme... particularly with regard to the further necessity of the central bank's IRS facility," he added.

"We view this development, if other things were constant, as less supportive of government bond demand and supportive of HUF (there will be less aggressive monetary expansion). Other things, however, will not be constant in the coming quarters: MNB will be cutting its benchmark rate itself aggressively and hence we expect long-end government bond yields to decline further and the HUF to weaken (to 320.00 vs. EUR) by year-end-end." said Commerzbank in a report.