Unconventional central bank instruments in Hungary
The financial crisis revealed that – due to the reliance of the Hungarian banking sector on external funding – the deterioration in the liquidity position can be a significant obstacle to lending in spite of the ample forint liquidity at the system level. The Magyar Nemzeti Bank introduced several unconventional instruments in order to ease the liquidity and financial tensions, to ensure the forint and foreign exchange liquidity of the banking system and to overcome money market turmoil in the crucial FX swap market. Due to banks’ deteriorating lending capacity, the MNB continued to expand these instruments in early 2012. The set of instruments may reduce liquidity constraints, which restrain lending, and provides a safety net against unfavourable liquidity shocks.
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- Judit Páles & Lóránt Varga, 2008. "Trends in the liquidity of Hungarian financial markets – What does the MNB’s new liquidity index show?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 3(1), pages 44-51, April.
- Lóránt Varga, 2010. "Introducing optional reserve ratios in Hungary," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 5(3), pages 57-66, October.
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