October 7, 2016 / 9:36 AM / a year ago

UPDATE 1-Hungarian central bank unveils swap, deposit tools in policy-easing bid

(Adds detail, more comments)

BUDAPEST, Oct 7 (Reuters) - Hungary’s central bank, aiming to ease monetary conditions by non-conventional means, will introduce two new measures to better manage liquidity in the local interbank market, two of its economists wrote on Friday.

When needed, the bank will use forint swaps for the first time to inject forints into the market, and establish a one-week deposit facility, to be activated when there is an excess of forints.

The new tools could help the central bank ease monetary conditions, Pal Kolozsi and Mihaly Hoffmann said in an article on website Portfolio.hu.

Last month, it said it would keep its base rate at 0.9 percent, also announcing a cap on its main 3-month deposit rate as it seeks to encourage commercial banks to lend and buy government debt, rather than park excess cash with the central bank.

The new one-week deposit facility will pay an interest rate equal to the base rate, and the forint swaps will run over one-week, one-month and three-month terms.

The deposit cap is expected to cause fluctuations in market liquidity, in response to which the new fine-tuning tools will be used on a case-by-case basis, the economists said.

They did not say when the tools would be used for the first time.

Reporting by Sandor Peto and Krisztina Than; editing by John Stonestreet

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