The steps the Hungarian government takes to tackle inflation

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 Széchenyi 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 Gulyás told a regular press briefing – again. 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, Gulyás 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, Gulyás said. Further, the government will extend the Széchenyi  Card business credit programme and launch a “factory-saving” scheme, he added.

The details of the new measures were outlined by Márton 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 15 November until July 2023. Interest rates will be frozen retroactively at their 28 June levels, which was 7.77 percent as against the current 16.69 percent, he said.

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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 HUF 2,000 billion (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 Közlöny, he said.

Meanwhile, Nagy said the interest rate on Széchenyi  card loans for businesses will rise to 5 percent from the current 3.5 percent from 1 January, 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.

Gulyás 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.

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Meanwhile, asked about Finland and Sweden’s NATO membership bids, Gulyás 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.