Hungary caps interest rates on large commercial bank deposits

BUDAPEST, Nov 21 (Reuters) – Hungarian commercial banks cannot pay interest above the three-month bank rate on deposits from some large institutional and private investors, the economic development minister said on Monday.

Marton Nagy, a former central bank deputy governor, told state news agency MTI that the move targeted investors who took advantage of high central bank rates by putting their money in central bank deposits. through commercial banks.

The National Bank of Hungary announced an emergency rate hike last month and introduced a fast deposit facility with an interest rate of 18%.

Under the measure described on Monday, until March 31, 2023, commercial banks cannot pay an interest rate higher than the yield of the three-month discount bill on deposits from investment companies, credit unions savings, building societies, investment funds and individuals. ‘ deposits of more than 20 million forints ($49,980.01).

These investors used the central bank’s high interest rate and “they realized a risk-free interest rate of up to 18% which was eventually paid by the state,” Nagy said.

The yield on the three-month discount bill was around 12% on Monday.

The central bank did not immediately respond to questions from Reuters about the new regulations.

“This means that (the government) neutralizes part of the transmission mechanism of monetary policy. There will be a segment of the economy where high interest rates will not apply because certain market participants will not be able to access”, Peter Virovacz, senior said the economist of ING.

Yields on long-term government bonds fell after Nagy’s announcement and were about 25 basis points lower by late afternoon, a fixed-income trader in Budapest said. The yield on the 10-year bond was around 7.90%.

“Investment funds started buying the short soon after the announcement, and that had an effect on the long term as well,” said a fixed-income trader in Budapest.

“Yields first fell about 50 basis points and then rose 25 points. We don’t yet know the technical details of the new rules, so there is a lot of confusion in the market.”

($1 = 400.1600 forints)

Reporting by Anita Komuves; Editing by William Maclean and Josie Kao

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