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)
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