IDEAS home Printed from https://ideas.repec.org/a/mnb/bullet/v4y2009i3p6-13.html
   My bibliography  Save this article

The role of MNB bills in domestic financial markets. What is the connection between the large volume of MNB bills, bank lending and demand in the government securities markets?

Author

Listed:
  • Csaba Balogh

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

The two-week MNB bill is a central component of Hungary’s monetary policy instruments; it is a key instrument of the central bank, the interest rate of which is identical to the central bank base rate. By mid-2009, the outstanding amount of MNB bills reached HUF 3,000 billion, which – in addition to representing one third of the central bank’s liabilities – accounts for a significant part of the domestic banking sector’s liquid assets. By using the two-week bill to absorb the excess liquidity of the banking sector, the central bank ensures that developments in banks’ interest rates will be driven by the MNB bill as an opportunity cost. The volume of these liquid assets builds up gradually, regardless of banks’ willingness to lend. Indeed, the growth observed in the holdings of MNB bills helped to relieve the liquidity tensions of credit institutions and contributed to gradually reducing the role of this factor in the decline in lending activity in 2009. Nonetheless, lending remained restrained despite the ample liquidity, which primarily reflects banks’ deteriorating risk appetite. One of the major correlations in the central bank’s balance sheet is the fact that, while credit institutions are free to decide on the volume of two-week MNB bills they purchase at the individual level, they are unable to affect the volume of bills in the overall banking sector. The accelerated growth rate in the volume of two-week bills observed in the previous year resulted from the use of foreign currency loans to finance the general government, which implies that the large volume of two-week bills is a consequence of poor demand in the government securities market, rather than the reason for this. In a regional comparison, however, the relatively high central bank base rate does not affect the volume of the key instrument, as the central bank interest rate has no direct impact on the liquidity of the banking sector.

Suggested Citation

  • Csaba Balogh, 2009. "The role of MNB bills in domestic financial markets. What is the connection between the large volume of MNB bills, bank lending and demand in the government securities markets?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(3), pages 6-13, October.
  • Handle: RePEc:mnb:bullet:v:4:y:2009:i:3:p:6-13
    as

    Download full text from publisher

    File URL: http://www.mnb.hu/letoltes/balogh-2009-okt-en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bindseil, Ulrich, 2004. "Monetary Policy Implementation: Theory, past, and present," OUP Catalogue, Oxford University Press, number 9780199274543.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniela Gabor, 2012. "Managing Capital Accounts in Emerging Markets: Lessons from the Global Financial Crisis," Journal of Development Studies, Taylor & Francis Journals, vol. 48(6), pages 714-731, June.
    2. György, László & Veress, József, 2013. "The Possible Causes of and Means of Avoiding External Financial Vulnerability – Hungary versus Singapore," Public Finance Quarterly, Corvinus University of Budapest, vol. 58(1), pages 53-75.
    3. Pulay, Gyula & Máté, János & Németh, Ildikó & Zelei, Andrásné, 2013. "Budgetary Risks of Monetary Policy with Special Regard to the Debt Rule," Public Finance Quarterly, Corvinus University of Budapest, vol. 58(1), pages 11-34.
    4. Daniela Gabor, 2011. "Paradigm shift? A critique of the IMF’s new approach to capital controls," Working Papers 1109, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    5. András László, 2016. "Impact of the Funding for Growth Scheme on the Hungarian economy," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(4), pages 65-87.
    6. Mihály Hoffmann & Zsuzsa Kékesi & Péter Koroknai, 2013. "Changes in central bank profit/loss and their determinants," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 8(3), pages 36-48, October.
    7. László Bodnár & Miklós Luspay & Annamária Madarász, 2014. "The effect on payments of the conversion of MNB bills into deposits," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 9(2), pages 36-44, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eladio Febrero & Jorge Uxó & Óscar Dejuán, 2015. "The ECB During the Financial Crisis. Not so Unconventional!," Metroeconomica, Wiley Blackwell, vol. 66(4), pages 715-739, November.
    2. Green, Christopher & Bai, Ye & Murinde, Victor & Ngoka, Kethi & Maana, Isaya & Tiriongo, Samuel, 2016. "Overnight interbank markets and the determination of the interbank rate: A selective survey," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 149-161.
    3. Eric Monnet & Miklos Vari, 2023. "A Dilemma between Liquidity Regulation and Monetary Policy: Some History and Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 915-944, June.
    4. Julien Pinter, 2022. "Monetarist arithmetic at COVID‐19 time: A take on how not to misapply the quantity theory of money," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(2), July.
    5. Gersbach, Hans & Böser, Florian, 2020. "Monetary Policy with a Central Bank Digital Currency: The Short and the Long Term," CEPR Discussion Papers 15322, C.E.P.R. Discussion Papers.
    6. Andreas Bley, 2009. "Gut geschlagen: Geldpolitik der EZB in der Finanzmarktkrise," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 78(1), pages 66-82.
    7. Morten L Bech & Cyril Monnet, 2013. "The Impact of Unconventional Monetary Policy on the Overnight Interbank Market," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Matthew Lilley & Mark Manning (ed.),Liquidity and Funding Markets, Reserve Bank of Australia.
    8. Vincent Bignon & Marc Flandreau & Stefano Ugolini, 2012. "Bagehot for beginners: the making of lender‐of‐last‐resort operations in the mid‐nineteenth century," Economic History Review, Economic History Society, vol. 65(2), pages 580-608, May.
    9. Walter, Timo, 2019. "Janus Face of Inflation Targeting_Walter_PrePrint," OSF Preprints 9fmhe, Center for Open Science.
    10. Tanweer Akram & Syed Al-Helal Uddin, 2021. "An empirical analysis of long-term Brazilian interest rates," PLOS ONE, Public Library of Science, vol. 16(9), pages 1-20, September.
    11. Tanweer Akram, 2020. "A Simple Model of the Long-Term Interest Rate," Economics Working Paper Archive wp_951, Levy Economics Institute.
    12. Claudio Borio & William Nelson, 2008. "Monetary operations and the financial turmoil," BIS Quarterly Review, Bank for International Settlements, March.
    13. van Eeghen, Piet-Hein, 2021. "Funding money-creating banks: Cash funding, balance sheet funding and the moral hazard of currency elasticity," International Review of Financial Analysis, Elsevier, vol. 76(C).
    14. Stefano Ugolini, 2012. "The origins of foreign exchange policy: the National Bank of Belgium and the quest for monetary independence in the 1850s," European Review of Economic History, European Historical Economics Society, vol. 16(1), pages 51-73, February.
    15. Anne-Marie Rieu-Foucault, 2017. "Point sur la fourniture de liquidié publique," Working Papers hal-04141643, HAL.
    16. Marcel Fratzscher & Philipp König & Claudia Lambert, 2013. "Liquiditätsmanagement des Eurosystems im Zeichen der Krise," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 80(44), pages 3-17.
    17. Kyungsoo Kim, Byoung-Ki Kim, Hail Park, 2012. "Interest Rate-oriented Monetary Policy Framework and Financial Procyclicality," Korean Economic Review, Korean Economic Association, vol. 28, pages 161-188.
    18. Levrero, Enrico Sergio & Deleidi, Matteo, 2019. "The causal relationship between short- and long-term interest rates: an empirical assessment of the United States," MPRA Paper 93608, University Library of Munich, Germany.
    19. Matheus R. Grasselli & Alexander Lipton, 2018. "On the Normality of Negative Interest Rates," Papers 1808.07909, arXiv.org.

    More about this item

    Keywords

    central banks' monetary policy instruments; open market operations; determining interest rates.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mnb:bullet:v:4:y:2009:i:3:p:6-13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Maja Bajcsy (email available below). General contact details of provider: https://edirc.repec.org/data/mnbgvhu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.