Hungary central bank to provide FX from reserves to cover energy imports

BUDAPEST, March 10 (Reuters) - Hungary's central bank will provide foreign currency liquidity from its international reserves worth some 60 billion euros ($69.85 billion) to cover higher foreign currency demand for energy imports, it said in a statement on Tuesday.

Import-reliant Central Europe's financial markets have been shaken by the U.S.-Israeli war on Iran, which drove up energy prices, and hit regional currencies and bonds before Tuesday's relief rally on hopes of de-escalation.

Hungary still gets 75% of its gas and nearly all of its oil needs from Russia. Its currency and bond markets were among the hardest-hit in Central Europe in the past days due to its strong reliance on cheap energy and high import needs.

"We are monitoring market developments and it became relatively clear that the foreign currency exchange rate was moving in tandem with energy prices," Deputy Governor Zoltan Kurali told an online briefing.

"For us, reaching and maintaining price stability is of pivotal importance. Foreign exchange market stability has a key role in this regard," he said, declining comment on the size or the time frame of the new measure.

At 1358 GMT, the forint EURHUF=, which sank to a seven-month-low at 400 per euro on Monday, traded at 385 per euro, stronger than levels of around 387 before the bank's announcement.

"We want to avoid the market overthinking the link between energy and foreign exchange markets," Kurali said, adding that liquidity would be provided under market conditions.

Hungary's forint plunged to record lows after Russia's 2022 invasion of Ukraine, tracking a rise in European gas prices and contributing to the European Union's worst inflationary surge in the following years.

Kurali declined comment on how the market volatility, which has also forced central European debt managers to cut back debt offers scheduled for this week, would affect the outcome of the bank's March 24 monetary policy meeting.

Last month,the bank lowered its base rate by 25 basis points to 6.25%, its first rate cut since late-2024. But policymakers did not commit to an easing cycle, saying they would track the impact of each rate change.

Kurali said that guidance has paid off in light of the current market volatility, which has overshadowed a benign February inflation reading released earlier on Tuesday.

"In light of this market turbulence we can see that the cautious and patient approach of the central bank has been the right one and we will stick to this path going forward," he said.

($1 = 0.8590 euros)