Gergely Gulyas – Photo: MTI

Gulyas: Interest rate freeze to be extended to SMEs

Hungary's government is tackling inflation fuelled by sanctions in coordination with the central bank, as part of which it will freeze interest rates on the loans of small businesses, extend the Szechenyi Card business credit programme and launch a "factory-saving" scheme, the prime minister's chief of staff said on Saturday.

Europe and Hungary are struggling with sanctions-fuelled inflation and paying a “sanctions surcharge” on energy, Gergely Gulyas told a regular press briefing. This, he said, was increasing shipping costs and food prices and having a negative impact on the everyday lives of Hungarian families.

The government intends to combat sanctions-fuelled inflation in coordination with the central bank, Gulyas said.

He noted that the government has recently decided to extend a temporary freeze of mortgage loan interest rates. Other decisions made at Wednesday’s cabinet meeting included extending the interest rate freeze to loans to small and medium-sized businesses at the request of the Hungarian Chamber of Commerce and Industry (MKIK) and the National Association of Businesses and Employers, Gulyas said. Further, the government will extend the Szechenyi Card business credit programme and launch a “factory-saving” scheme, he added.

The details of the new measures were outlined by Marton Nagy, the minister of economic development, who emphasised that the government was fighting inflation fuelled by sanctions while at the same time aiming to avoid a recession.

Nagy announced that the government is freezing the interest rates on loans to SMEs from Nov. 15 until July 2023. Interest rates will be frozen retroactively at their June 28 levels, which was 7.77 percent as against the current 16.69 percent, he said.

Around 60 percent of SME loans are subsidised, with 40-45 percent being variable-rate loans, the minister said. The stock of variable-rate loans to SMEs amount to almost 2,000 billion forints (EUR 4.9bn) and are held by close to 60,000 businesses.

The details of the new measure will soon be published in the official gazette Magyar Kozlony, he said.

Meanwhile, Nagy said the interest rate on Szechenyi card loans for businesses will rise to 5 percent from the current 3.5 percent from Jan. 1, adding that the scope of products in the programme has been streamlined.

Further, the government is mulling using the bank levy not just as a fiscal tool but also as an economic incentive, Nagy said. “So those that lend will pay a smaller and those that don’t lend will pay a larger bank levy,” he said. The government will begin drafting such a scheme next week, he added.

Asked about the loan rate freeze, Nagy said the measure was an alternative to a moratorium. “We can either have an interest rate cap or a moratorium,” he said. The aim, he added, was to avoid a cost shock in the SME sector.

Nagy also said that the new Szechenyi card interest rates will be valid through the first half of next year.

The minister said Hungary had every chance to remain on a growth path while Germany could slide into recession.

As regards this week’s summit of European Union leaders, Gulyas said Hungary had succeeded in protecting everything important to the country. He added that Hungary would also benefit from a potential fall in the price of gas resulting from the decisions taken at the summit.

He said there had been a threat before the summit that the European Commission’s proposal to cap the price of Russian gas exports to Europe would leave Hungary without enough gas, as it would have made the implementation of the long-term gas supply agreements between Russia and Hungary impossible.

Gulyas expressed hope that the EU’s most recent decisions would contribute to a fall in prices. He said the summit had been successful and could contribute to “normalising unrealistic energy prices”.

In response to a question, Gulyas said Europe’s problem was not just rising prices but also that it had to compete globally with those who were able to buy raw materials at a fraction of the price Europe was, such as the United States.

Gulyas said the government was committed to preserving its family support system no matter how hard the next year may be, adding, at the same time, that the effectiveness and economic impact of the programmes needed to be examined.

Nagy said inflation could be brought down to single digits by the end of 2023. He said that fundamentally price caps were “not good”, but “the current times aren’t normal” and shocks needed to be managed. Price caps need to remain in place as long as they are needed and as long as inflation demands it, he added.

In response to a question, the minister said he expected Hungary’s economic growth to exceed that of the EU next year, though there will be a temporary slowdown. He said he expects the economy to expand by 4-5 percent in 2024-2025. Nagy said the central bank had been successful in stabilising inflation and had contributed to financial stability.

Meanwhile, asked about Finland and Sweden’s NATO membership bids, Gulyas said parliament first had to pass legislation concerning the commitments Hungary had made in its agreement with the European Commission. Now that those have been approved, Finland and Sweden’s NATO bids will be debated before the end of the autumn session, he said.

Gulyas said Hungary has been working to strengthen the defence alliance for years and to reach the goal set by NATO to raise defence spending to 2 percent of GDP.

“We’re not interested in what is or isn’t in Russia’s interest,” Gulyas said. “The question is what Hungary’s interests are, and we will make a decision accordingly.” He added that there could be no peace agreement between Russia and Ukraine which Ukraine did not accept.

On another subject, he said the European Commission’s decision to withhold funding from Poland was “unfair, unlawful and politically motivated”, adding that it did not contribute to the bloc’s unity. He criticised the EC for deciding on the approval of funds for member states based on sympathy.

Meanwhile, Gulyas slammed the local council’s decision to remove the statue of a turul bird from the Mukachevo (Munkacs) Castle in western Ukraine as “unacceptable”. If Ukraine intends to strengthen its ties with Europe, it must respect minority rights, he added.

On another subject, Gulyas said it was untrue that the sale of state assets would decrease the nature conservation protection of certain areas. The state’s job is to maintain an area’s required level of protection, which it can still do even if it does not own the property in question, he added.

Nagy said there were still some properties under state ownership which could be put to better use under private ownership. Recent amendment proposals would speed up the sale of those areas, he added.

Meanwhile, Gulyas said there were no political reasons behind the decision to relieve the diplomat in charge of energy affairs assigned to Brussels of his post.

Gulyas also said the EU should examine whether the sanctions the United States recommends or “forces it” to impose on Russia serve the bloc’s interests.

Without the energy sanctions, inflation would be one-third its current rate or would even have returned to its past level, he added.

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