The National Bank of Hungary will gradually crimp the amount of cash domestic lenders pour into its main deposit instrument this year as it looks to push interest rates for trillions of forint in loans and securities below its key rate.
Central bankers will probably put a cap on access to its three-month deposit instrument at 1.5 trillion forint ($5.4 billion) at the Sept. 20 monetary-policy meeting and gradually reduce it to 1 trillion forint by year-end, according to the median estimate of seven economists in a Bloomberg survey. That compares with total deposits of 1.63 trillion forint on Wednesday and as much as 3.1 trillion in February.
The limit will become an important instrument as the central bank seeks to fine-tune its policy without changing the benchmark rate. Pushing it lower would amount to easing financing conditions, alleviating appreciation pressure on the forint and helping avoid having to tighten policy when inflation begins to accelerate. The cap will bolster the regulator’s efforts to shift domestic lenders’ cash from its balance sheet to the government bond and interbank markets, boost domestic ownership of debt and reduce borrowing costs.
“The central bank is going to decrease the deposit facility gradually,” said Peter Virovacz, an economist at ING Groep NV’s Hungarian unit. Policy makers will probably impose a more restrictive ceiling if the currency appreciates further, he said.
The monetary authority is attempting to boost activity in a lending market that has failed to match a recovery in economic growth in Hungary, the first European Union member to require an International Monetary Fund bailout during the financial crisis in 2008. A drop in the Budapest Interbank Offered Rate means lower rates for the bulk of about 3 trillion forint in household mortgages and 3.1 trillion forint in corporate loans.
Limiting access to the central bank’s main deposit instrument will probably cut the 3-month Bubor to 0.7 percent by year-end, from 0.88 percent on Wednesday, the survey showed. That compares with the central bank’s 0.9 percent benchmark rate. The estimate in the poll is in line with forward-rate agreements, which show bets for the main interbank rate falling to 0.69 percent by year-end.