Hungary's lenders call on central bank to undo reserve policy change

BUDAPEST, March 2 (Reuters) - Hungary's Banking Association called on the central bank on Thursday to undo a policy change curbing the interest paid on required reserves, which banks say will cost them over 100 billion forints ($281.75 million) and could stifle lending. The call for the National Bank of Hungary to change another key plank of its monetary policy comes just two days after Prime Minister Viktor Orban's top economic aide piled pressure on the central bank to start lowering borrowing costs. The bank, led by Governor Gyorgy Matolcsy, Orban's former economy minister, defied that call, leaving the European Union's highest base rate steady at 13%, as expected, and said it would tighten liquidity conditions further to curb inflation. The NBH also exempted one-fourth of required reserves from bearing interest, while continuing to pay the base rate on the rest of required reserves as part of broader efforts to tighten liquidity conditions. Banks in Hungary say Tuesday's measure would mean banks receive 9.75% weighted interest on their required reserves at a time when inflation is running above 25%, which will trigger losses worth over 100 billion forints annually. "In light of the above, the Hungarian Banking Association is calling for the announced central bank measure to be reversed to maintain the capacity of the banking sector to finance the economy," the body said in a statement. Credit ratings agency S&P cut Hungary's long- and short-term foreign and local currency ratings to 'BBB-/A-3' from 'BBB/A-2' in January, citing persistently high inflation and external pressures. Moody's is scheduled to review Hungary on Friday. The European Commission forecasts Hungary's average inflation at 16.4% this year, the highest in the European Union. On Tuesday the NBH pledged to maintain tight monetary conditions amid strong service sector repricing and other risks. ($1 = 354.93 forints) (Reporting by Gergely Szakacs; Editing by Sharon Singleton)