| BUDAPEST, April 4
BUDAPEST, April 4 Hungary's new central bank
chief launched measures to boost lending and tackle companies'
foreign currency debt on Thursday, embarking on a new path to
support the government's pro-growth agenda.
Newly appointed central bank Governor Gyorgy Matolcsy
unveiled a 250 billion forint ($1.06 billion) scheme aimed at
small and medium sized companies that he said was based on the
Bank of England's Funding for Lending programme.
"Hungary needs a turnaround in economic growth," Matolcsy
told a news conference, adding that the bank's mandate allowed
it to support government economic policy if it meets its goals
of price and financial stability.
He also said the central bank would use 3 billion euros of
its reserves to help relieve small and medium-sized firms
struggling to pay off debts denominated in euros and Swiss
francs that have become more expensive due to the weaker forint.
The announcements confirmed months of market speculation
that Matolcsy, a close ally of Prime Minister Viktor Orban,
would extend into the bank a campaign of pro-growth policies he
created as economy minister.
His pledges to use the bank to further Orban's economic
policies - which eschew traditional austerity measures espoused
by the European Union and International Monetary Fund in favour
of taxing foreign companies, seizing private pension funds, and
other measures - have kept markets on edge.
Investors have been concerned about the bank's independence
under Matolcsy. Orban, who has been accused by the European
Union and United States of weakening Hungary's young democracy.
In the few weeks he has been in charge at the bank, Matolcsy has
dismissed several of its most respected economists.
Thursday's announcements did not go as far as some analysts
had expected, but they knocked the forint currency more than
half a percent lower versus the euro before a rebound to
stronger levels at 301.
Matolcsy said the central bank would extend credit to
commercial lenders for free so they would give loans to firms at
a maximum 2 percent, far lower than the bank's official lending
rate of 5 percent.
He said the bank, after talks with commercial banks and the
government, would also reduce the amount of 2-week bills the
bank issues to partly offset the new flow of cash, a measure
analysts said could push the forint weaker.
The forint has lost about 4 percent this year, more than any
other currency in emerging Europe.
"The announcement on the whole is not the worst we could
have expected. The riskiest move at first glance seems to be the
limiting of two-week deposits, which could have a direct forint
weakening effect, but the extent of that could have been worse,
too," said Zoltan Arokszallasi at Erste Bank.
"In short, there are risks but we need to see the details. If
those details are not extreme, the overall effect may be limited
on the market."
Despite the forint's weakness, investors have continued to
buy Hungarian debt, and government yields fell on Thursday by
around 40 basis points across the curve in government bond