Hungary's economic stimulus schemes should be temporary-minister
BUDAPEST Oct 16 (Reuters) - Hungary's government and central bank should maintain their lending stimulus programmes only until commercial bank lending and the economy gather speed, Economy Minister Mihaly Varga told the weekly Heti Valasz.
"This (stimulus) would be risky in the longer term, therefore it can be maintained only as long as the pace of (economic) growth is low and until banks return to lending," he said in an advance copy of an interview to be published on Thursday.
Varga did not specify the risks.
The central bank, led by Prime Minister Viktor Orban's ally, Gyorgy Matolcsy, announced a new 2 trillion forint ($9 billion) programme last month to help banks extend cheap loans to firms and help the economy recover from last year's recession.
With elections due next year and inflation near four-decade lows, partly due to utility price cuts imposed by the government, the bank is also expected to make further cuts in its base rate, which it has almost halved since last year to 3.6 percent.
Despite the official interest rate cuts, lending to companies has been contracting for years.
Foreign owners in the heavily taxed banking system have withdrawn funding as European banks have been cutting lending exposure since the 2008 global crisis.
"As commercial banks show low willingness to lend, we should temporarily try to replace commercial bank loans. The state, and also the national bank, are working on that," Varga said.
"Of course we don't want to return to the vicious circle into which previous governments fell, when they stimulated the economy by letting foreign currency lending rise and they financed social spending from borrowing," he said. ($1 = 219.2062 Hungarian forints) (Reporting by Sandor Peto; Editing by Ruth Pitchford)
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