The design and implementation of the MNB’s euro sale programme introduced in relation to early repayments

György Pulai () and Zoltán Reppa
Additional contact information
György Pulai: Magyar Nemzeti Bank (central bank of Hungary)

MNB Bulletin (discontinued), 2012, vol. 7, issue 2, 31-40

Abstract: As a result of the early repayment programme launched in the autumn of 2011, buying demand for several billions of euros arose on the side of domestic banks. The purchase of such amounts in the foreign exchange market would have alone contributed to a substantial weakening of the forint; moreover, it could have led to a speculative attack, further aggravating the depreciation of the currency. The objective of the MNB’s euro sale programme was to use the Bank’s foreign exchange reserves in a prudent manner, under clearly defined terms, to prevent depreciation of the national currency without increasing the country’s vulnerability. Both the situation of domestic banks and the development of the instrument were made difficult to a great extent by the fact that the volume of loans to be repaid and hence the quantity of foreign currency necessary for hedging were uncertain. The Bank therefore needed to define the parameters of the instrument so as to enable credit institutions to continuously buy foreign currency from the Bank, but without encouraging overhedging and to ensure that the price of the instrument is not cheaper than the market rate, but not so high as to discourage banks from using it. The MNB held a total of 22 tenders; it paid out approximately EUR 2.6 billion of the foreign currency sold at the tenders, equalling 60 per cent of the total volume of the early repaid loans.

Keywords: foreign exchange; international lending; central banking; asset pricing (search for similar items in EconPapers)
JEL-codes: E58 F31 F34 G12 G14 (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.mnb.hu/letoltes/pulai-reppa.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mnb:bullet:v:7:y:2012:i:1:p:31-40

Access Statistics for this article

More articles in MNB Bulletin (discontinued) from Magyar Nemzeti Bank (Central Bank of Hungary) Contact information at EDIRC.
Bibliographic data for series maintained by Maja Bajcsy ( this e-mail address is bad, please contact ).