Hungary to Set Uniform Bank Reserve Ratio to Approach ECB Policy

  • Regulation aimed at boosting demand for government debt
  • Mandates 2% reserve ratio instead of options between 2% and 5%

Hungary’s central bank will introduce a mandatory 2 percent reserve ratio for all domestic banks to boost demand for public debt and harmonize policy with European Central Bank practice, it said on Tuesday.

The National Bank of Hungary will replace the current regime, where lenders can pick from reserve ratios between 2 percent and 5 percent, the regulator said in a statement. The new ratio requirement will come into effect on Dec. 1, after the bank seeks the opinion of the ECB.

The regulatory change complements earlier measures designed to channel domestic banks’ liquidity to the government bond market. The National Bank of Hungary has moved to a new benchmark instrument and introduced stiffer liquidity regulations to entice investors to buy more government debt instead of using central bank deposits.

The change in reserve requirements was necessary as the current system allowed lenders "to adjust to tighter liquidity requirements using a central bank facility instead of the government securities market, which, however, is contrary to the objectives of the self-financing program," the central bank said.

The forint weakened 0.3 percent to 313.42 against the euro by 3:23 p.m. in Budapest, paring its advance in the second half of 2015 to 0.6 percent, the third-best performance among 24 emerging-market currencies tracked by Bloomberg.

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