Hungary industry body backs cheaper loans after state threats

Hungary’s Banking Association told local lenders on Tuesday to back a government proposal to provide cheaper loans to boost the economy after Prime Minister Viktor Orban’s cabinet threatened banks with new taxes on profits reaped from high interest rates.

Faced with Hungary’s longest recession since modern records started, Orban’s government is struggling to revive growth and lending to put the economy back on a path of expansion next year, when European parliamentary elections are due.

Orban’s cabinet has also stepped up its criticism of the central bank, with the two sides trading blame for the inflation crisis and economic development minister Marton Nagy criticising the bank for hampering the recovery with high borrowing costs.

Earlier on Tuesday, Nagy’s ministry, which has been in talks with the country s lenders, called on commercial’ banks to impose an interest rate cap on new loans for companies and households below the central bank’s 13% benchmark rate, the EU’s highest.

It said new loans for households should carry a maximum interest rate of 8.5%, while the cap on new loans for businesses should be set at 12% from October 9.

“Setting individual interest rate levels will depend on the voluntary decision of each member bank,” the association said, advising lenders to support the proposal by the ministry.

The body said the changes could help boost lending to companies and households and revive the construction sector. Hungary s economy is

to’stagnate expected this year at best, as the EU’s highest inflation, which peaked above 25% in the first quarter, has slammed the brakes on consumption.

With inflation retreating, the National Bank of Hungary cut its one-day deposit rate by 100 basis points to 13% last week, unwinding its emergency rate hikes launched last October, but struck a cautious tone about further easing.

On Tuesday, the bank said it would continue to base its policy decisions on its goal of curbing inflation in the long term.

The economic slowdown has also squeezed the budget, prompting the government to raise its 2023 deficit target to 5.2% of economic output from 3.9%.