FT Alphaville " QE-lite in Hungary It's understandable why the introduction of a two-year collateralised credit facility as well as the expansion of the range of eligible collateral accepted by Hungary's central bank, the Magyar Nemzeti Bank (MNB), might have been confused for the Hungarian version of the ECB's LTRO. But, says Nomura's Peter Attard Montalto, this would be a misnomer. Hungary's central bank action, he believes, is much more akin to a QE-lite operation. Montalto writes: The term funding facility is designed to provide longer term funding for banks, out to two years, compared with the usual multi-week market operations. The funding stream will reprice after a time yet to be decided. The facility is being termed a Hungarian LTRO, though we think this is inaccurately portraying it - carrying too much political and incentive questions from the ECB facility. In reality it is an extension of normal facilities with the effect of being a kind of QE-lite on the front end of the bond curve. Banks will buy short-run government debt and swap it out for term funding at the MNB. Currently, term funding is not available to banks with the exception of swaps and parent company facilities. We think that the facility will enable the front end of the curve to remain bid and also support our view over the medium run that the trade in the front end of the curve is to receive. It should also increase the pass-through potential of future rate moves giving the potential for rate cuts in the latter half of the year to have increased efficacy (assuming either the facility is still in place or that the repricing manages to pick it up). That said on the flip side it does perhaps increase the hurdle for the MPC to hike rates in the near term. Traditionally, the lack of real domestic interest rate channel put the MPC's mind at ease about the impact of hiking rates (it could target the currency channel more directly). We keep our view of two more 50bp hikes in Q2 in response to the increase in risk premia we see as being required for an agreement between the IMF/EU and government, but would admit the probability is now lower. The MNB is quite clear that this facility is designed to increase corporate lending via an improvement in the asset/liability matching. So there you have it. More QE-lite than long-term liquidity op. Or you could think of the measures as back-stops put in place to protect against Greek fallout, rather than direct liquidity provision. Related links: Hungary - "the Commission remains preoccupied..." - FT Alphaville Hungary for junk - FT Alphaville Hungary: savers move cash to Austria - FT beyondbrics This entry was posted by Izabella Kaminska on Friday, February 17th, 2012 at 14:17 and is filed under Capital markets. Tagged with eurozone, hungary, LTRO, MNB.