Hungarian central bank sees room for steep decline in foreign reserves

By bne IntelliNews November 19, 2015

The Magyar Nemzeti Bank sees room for a substantial decrease in its foreign reserves over the next two years, Mihaly Hoffmann, a director at Hungary's central bank, said on November 19.

The MNB's forex reserves could be trimmed by as much as €10bn to leave them at just €22bn by the end of 2017. That total would be adequate because short-term external debt is expected to decline in the coming years.

“The current reserves adequacy is more than ample, there’s no reason to maintain it at this level from either a vulnerability or cost point of view”, Hoffmann said, according to Bloomberg. “There’s room for a further, substantial decline in foreign reserves.”

The decline in forex reserves is supported by the central bank and state debt agency AKK efforts to reduce the share of foreign currency bonds in Hungary's state debt. Those efforts include MNB purchases of shorter-dated Eurobonds in the market; AKK's refinancing of forex debt via forint issuance, and the central bank's offering of foreign currency to help convert household loans into forints.

Hungary’s foreign-currency-denominated debt could fall 5pp to as low as 32% of total state debt this year, AKK head Gyorgy Barcza claimed recently. Forex debt made up around 37% of the portfolio at the start of 2015.

As part of efforts to cut the share of forex debt, AKK has refrained from tapping the international debt market this year and rolled over expiring debt from forint-denominated issuance.

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