Interest rates

Hungary to freeze retail mortgage interest rates from January to PM

  • Mortgage rates will be set at end-October levels for 6 months
  • Measure to cost banks around 30 billion forints – media
  • Three-month cap on fuel prices follows amid soaring inflation
  • Prime Minister Orban set to face an uphill battle for re-election in 2022

BUDAPEST, Dec.22 (Reuters) – Hungary will freeze retail mortgage interest rates for a six-month period starting in January, the prime minister said on Wednesday, the latest move to protect households from the hike in inflation ahead of potentially hotly contested national elections. .

Hungary’s central bank, the first in the European Union to start increasing borrowing costs since the coronavirus pandemic began in early 2020, raised its policy rate (HUINT = ECI) by 180 basis points since June to reach its highest level since May 2014.

Hungarian inflation (HUCPIY = ECI) hit a 14-year high of 7.4% in November, above expectations, due to higher prices for fuel, alcohol and tobacco. Prices for services increased 4.6%.

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The central bank said it would have to keep raising interest rates for much of next year to dampen price growth and rising inflation expectations.

“Inflation affects other areas, for example the interest rates on loans taken out earlier,” Prime Minister Viktor Orban said in a video on Facebook. “Therefore, we have to build new lines of defense. We are launching a retail interest rate freeze.”

Orban said retail mortgage interest rates would be set at end-October levels, which would reduce repayments from February.

Local media reported that the measure, involving nearly half a million loan contracts, would cost Hungarian banks around 30 billion forints ($ 92.31 million). A government spokesperson did not immediately respond to emailed requests for comment

Earlier last month, Orban announced a three-month cap on fuel prices, triggering a sell-off in shares of Hungarian energy group MOL (MOLB.BU), which have since fallen by around 8%.

Shares of Hungarian bank OTP ended trading down 7.6% to their lowest in five months at 15,600 forints, underperforming the Budapest blue chip index (.BUX), which fell 2.94%, dragged down by falling OTP shares.

Currency traders said the announcement also weighed on the forint, which is around 1% from its all-time low of 372 per euro reached in November.

Hungarian Banking Association press officials did not immediately respond to email requests for comment. Spokesmen for OTP, Central Europe’s largest independent lender, and the central bank declined to comment immediately.

A Budapest-based stock analyst said the measure was even more negative than the fuel price cap, as global oil prices could retreat further. However, he said, Hungarian borrowing costs will continue to rise, making the blow on banks more lasting.

The central bank forecasts average inflation of around 5% this year and next, under pressure from disruptions in the global supply chain, rising energy prices and local factors, such as Tense labor markets and significant wage increases as next year’s vote approaches.

For the first time since taking power in a landslide in the 2010 election, Orban, 58, will face a united front of opposition parties in the poll, which is expected to be held in April.

Beyond price caps, Orban has also targeted key voting groups, such as newbies, families and retirees enjoying significant tax breaks and higher payouts ahead of the election.

($ 1 = 324.99 forints)

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Reporting by Gergely Szakacs Editing by Mark Heinrich

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