Hungarian banks are introducing an interest cap on mortgages in response to government pressure that represents the latest intrusion on monetary policy.
(Bloomberg) — Hungarian banks are introducing an interest cap on mortgages in response to government pressure that represents the latest intrusion on monetary policy.
OTP Bank Nyrt., Hungary’s largest lender, started offering on Monday mortgages with a maximum interest of 8.5%, significantly lower than the 13% base interest rate. The government has urged lenders to do more to spur a recovery from a year-long recession or else face the prospect of higher taxes.
The mortgage cap is unlikely to immediately trigger a credit surge after the country’s European Union-high inflation eroded savings, and therefore have much of a negative impact on lenders. But it may cause a headache for central bankers who clashed with ministers last month over the trajectory of monetary policy.
The government has “put the central bank in an uncomfortable position, signaling that it is not the only institution that sets monetary policy,” said Raffaella Tenconi, an economist at Wood & Co. The central bank declined to comment.
Last month, Economic Development Minister Marton Nagy warned that an excessively cautious rate policy would restrain the economy’s recovery. Governor Gyorgy Matolcsy, Nagy’s former boss, replied that the central bank needs to tackle inflation for sustained growth and must keep a relatively strict monetary policy in place to anchor the forint.
The mortgage cap was introduced at a sensitive time for monetary policy, just as policymakers are trying to manage investor expectations after lowering the key rate by five percentage points over the past five months.
Rate-setters have said they’ll no longer be on “autopilot” from this month forward as they seek to maintain a strict monetary policy to anchor the forint and rein in inflation, prompting speculation that the central bank may slow the pace of cuts.
Inflation data on Tuesday may help steer expectations, with the median estimate in a Bloomberg survey predicting a sharp drop to 12.4% in September after 16.4% in August.
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