Bank of Hungary limits interest rates
2022.11.21 11:39
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Bank of Hungary limits interest rates
Budrigannews.com – The Minister for Economic Development stated on Monday that commercial banks in Hungary cannot charge deposits from certain large institutional and private investors an interest rate that is higher than the three-month discount bill yield.
According to state news agency MTI, a former deputy governor of the central bank, Marton Nagy, the move was aimed at investors who used commercial banks to take advantage of high central bank rates and invest in central bank deposits.
Last month, the National Bank of Hungary introduced a quick deposit facility with an interest rate of 18% and announced an emergency rate increase.
Until March 31, 2023, commercial banks cannot pay an interest rate that is higher than the yield on the three-month discount bill on deposits of more than 20 million forints ($49,980.01) held by investment companies, savings banks, building societies, investment funds, and private citizens.
“They realized a risk-free interest rate of up to 18% that was, in the end, paid by the state,” Nagy stated of these investors’ use of the high central bank rate.
On Monday, the three-month discount bill had a yield of approximately 12%.
This indicates that the government is neutralizing a portion of the transmission mechanism for monetary policy.According to Peter Virovacz, senior economist at ING, “some market participants will not be able to access high interest rates, so there will be a segment of the economy where they will not apply.”
A fixed-income trader in Budapest reported that long-term government bond yields decreased following Nagy’s announcement and were approximately 25 basis points lower overall by late afternoon.The yield on the 10-year security was around 7.90%.
A fixed-income trader in Budapest stated, “Investment funds started to buy the short end soon after the announcement, and that had an effect on the long end as well.”
“Yields initially decreased by approximately 50 basis points before increasing by 25 points.There is a lot of confusion in the market because we do not yet know the technical details of the new rules.”
($1 = 420.2300 forints)
