Hungary Central Bank to use reserves to fund energy imports

In a Tuesday statement, the central bank of Hungary said it would?provide foreign exchange liquidity from its reserves in excess of 60 billion euros to cover increased foreign currency imports.

Central Europe's import-dependent financial markets were shaken by the U.S. and Israeli war against Iran. This increased energy prices and impacted regional currencies and bonds, before Tuesday's rally in hopes of deescalation.

Hungary continues to get 75% of its natural gas from Russia and almost all of its oil requirements. The currency and bond markets of Hungary were hit the hardest in Central Europe over the last few days due to the country's reliance on cheap imports and its high energy needs.

Zoltan kurali, Deputy Governor of the Central Bank, told an online briefing that he was monitoring market developments. It became apparent to him that energy prices and foreign currency exchange rates were moving together.

For us, achieving and maintaining price stabilization is crucial. In this respect, foreign exchange market stability is crucial.

The forint traded at 385 euros per forint at?1358 GMT. This was higher than the previous levels of 387 per euro before the announcement by the bank.

Kurali added that the liquidity will be determined by market conditions.

After the Russian invasion of Ukraine in 2022, the forint in Hungary plunged to a record low. This coincided with a rise in European gas prices. It also contributed to the worst inflationary spike in the European Union in the years that followed.

Kurali refused to comment on the impact of the recent market volatility that has forced central European debt managers, including Kurali, to reduce the debt offer scheduled for this coming week.

The bank cut its base rate last month by 25 basis points, to 6.25%. This was the first rate reduction since late 2024. The policymakers didn't commit to an easing period, but they did say that they would "track the impact" of each rate change.

Kurali stated that the guidance paid off due to current market volatility which 'overshadowed' a benign inflation reading for February released earlier on Tuesday.

He said that in light of the market turmoil, the central bank's cautious and patient approach was the best. We will continue to follow this path.

(source: Reuters)