* Cbank announces three-pronged plan to boost lending,
relieve firms of debt
* Measures not as extreme as some analysts expected
* Deputy governor Balog says no further plans to stimulate
* Economy Ministry says c.bank plans could help kickstart
* After early losses, forint rebounds 1 pct against euro
By Krisztina Than and Gergely Szakacs
BUDAPEST, April 4 Hungary's new central bank
governor launched plans on Thursday to help small- and
medium-sized firms survive recession and get cheap credit worth
around $2.1 billion.
But analysts said the sum may not be enouch to revive
The announcements confirmed months of market speculation
that Gyorgy Matolcsy, a close ally of Prime Minister Viktor
Orban, would extend into the bank a government campaign of
pro-growth policies he created as economy minister.
But they did not go as far as some analysts had expected,
easing some fears on markets about the policies.
The bank's deputy governor Adam Balog told Reuters that the
bank had no plans for further measures to stimulate the economy
on top of the programmes announced on Thursday and would
evaluate those in a few months' time.
Analysts said the programme could stabilize the forint and
Hungarian assets in the short term and give room for more
interest rate cuts by the central bank, but the measures would
not have a significant impact on growth.
"Overall, the size and the scope of the program ease
concerns about excessive monetary easing which may undermine
stability," said Eszter Gargyan, an analyst at Citigroup.
"The total impact on growth and net increase in corporate
loans is likely to be negligible."
Matolcsy's 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 - had kept markets on edge.
"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.
The Economy Ministry said in a statement that it welcomed
the bank's programme which could help kickstart growth and the
new initiative "was an example of the strategic partnership of
the Hungarian government and the central bank."
Matolcsy said the central bank would extend up to 250
billion forints ($1.06 billion) in credit to commercial lenders
for free in a plan based on the Bank of England's Funding for
Lending scheme so they would lend to small and medium-sized
firms at an interest of up to 2 percent.
It would spend the same amount in another plan to help those
companies refinance loans denominated in euros and Swiss francs
- now expensive due to the weaker forint - with low-cost loans
in the Hungarian currency.
The bank said in a statement that it was not planning a
similar scheme to help households indebted in foreign currency.
Under a separate scheme to be developed with the government
and banks, the central bank expects Hungary's short-term
external debt to fall by 1 trillion forints, which would allow
for a reduction of the bank's foreign currency reserves by about
3 billion euros.
In parallel with this, the central bank aims to reduce the
stock of two-week bills, its main instrument to drain excess
liquidity from the banking system, to 3.6 trillion forints from
4.5 trillion to curb related interest expenditures.
The forint hit a more than three week high shortly after the
Economists said that because Matolcsy had not announced
measures such as a large bond-buying programme from the central
bank or another type of quantitative easing, the forint could
"In terms of what markets had feared, that is, reserve
drawdown and huge amounts of bond buying, that hasn't happened
and the statement shows they are still staying within the realms
of orthodoxy," said Manik Narain, an analyst at UBS.
"Possibly Matolcsy has dialled back from the most unorthodox
policy plans and I think markets may be relieved."
Investors have been concerned about the bank's independence
under Matolcsy because of his links with Orban, who has been
accused by the European Union and United States of weakening
Hungary's young democracy.
Orban faces elections next year and his government needs to
show to voters that the economy is recovering from recession.
The forint has lost about 4 percent this year, more than any
other currency in emerging Europe, although investors say
Hungary's relatively high interest rates - at 5 percent the
second highest in the European Union - had supported it.
Despite the 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 tenders.