The Hungarian National Bank (MNB) lifted restrictions on its quantitative easing scheme and also made changes in its bond purchase programme at a meeting on March 9. Until now the MNB was restricted to buy only 50% of the series in a given government security.

The MNB has scaled up purchases, buying around HUF60bn (€164mn) of securities a week in the QE programme since February. Since its launch a year ago, total purchases have reached HUF1.55 trillion. MNB rate-setters performed a technical revision of the QE scheme in November and the next technical revision will be performed when the stock reaches HUF2 trillion.

The central bank’s QE programme has helped to maintain the stability and liquidity of the market and reduce the steepness of the yield curve.

Earlier, MNB-deputy governor Barnabas Virag told financial media he argued for keeping the 50% threshold, arguing that the MNB needs to find the middle ground, so it does not become too big of a player.

The latest modification will have no impact on weekly purchases but the MNB will likely shift its focus to longer-end maturities to curb rising yields.

Rising fear from inflation has triggered a sell-off in global bond markets recently, pushing yields higher. The Hungarian market was no exception. The 10-year benchmark has risen by some 100bp since the beginning of the year.

The 15-year Hungarian bond was quoted at 3.35% on Tuesday, up from 2.3% at the beginning of the year.

The MNB also announced on Tuesday that it has extended its bond purchase programme to securities issued by public companies in line with the asset purchase programme of the European Central Bank.

According to the decision, the central bank can buy bonds issued by non-financial public companies with a credit rating of at least B+ for a minimum of HUF1bn.

In compliance with the ECB's guidance, MNB will only buy bonds exclusively on the secondary market. The level of the central bank’s exposure to a group of companies may not exceed HUF70bn.

The MNB continues to neutralize excess liquidity arising from its purchases with the help of the preferential deposit instrument, it added.